e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 28, 2008
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Commission file number 1-6682
Hasbro, Inc.
(Exact Name of Registrant, As
Specified in its Charter)
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Rhode Island
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05-0155090
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(State of
Incorporation)
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(I.R.S. Employer
Identification No.)
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1027 Newport Avenue,
Pawtucket, Rhode Island
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02862
(Zip Code)
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(Address of Principal Executive
Offices)
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Registrants
telephone number, including area code
(401) 431-8697
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock
Preference Share Purchase Rights
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New York Stock Exchange
New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ or No o.
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o or No þ.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ or No o.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o or No þ.
The aggregate market value on June 27, 2008 (the last
business day of the Companys most recently completed
second quarter) of the voting common stock held by
non-affiliates of the registrant, computed by reference to the
closing price of the stock on that date, was approximately
$4,412,000,000. The registrant does not have non-voting common
stock outstanding.
The number of shares of common stock outstanding as of
February 9, 2009 was 139,269,056.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our definitive proxy statement for our 2009 Annual
Meeting of Shareholders are incorporated by reference into
Part III of this Report.
HASBRO,
INC.
Table of
Contents
PART I
General
Development and Description of Business and Business
Segments
Except as expressly indicated or unless the context otherwise
requires, as used herein, Hasbro, the
Company, we, or us, means
Hasbro, Inc., a Rhode Island corporation organized on
January 8, 1926, and its subsidiaries. Unless otherwise
specifically indicated, all dollar or share amounts herein are
expressed in thousands of dollars or shares, except for per
share amounts.
Overview
We are a worldwide leader in childrens and family leisure
time and entertainment products and services, including the
design, manufacture and marketing of games and toys.
Internationally and in the United States, our widely recognized
core brands such as PLAYSKOOL, TRANSFORMERS, MY LITTLE PONY,
LITTLEST PET SHOP, TONKA, G.I. JOE, SUPER SOAKER, MILTON
BRADLEY, PARKER BROTHERS, TIGER and WIZARDS OF THE COAST provide
what we believe are the highest quality play experiences in the
world. Our offerings encompass a broad variety of games,
including traditional board, card, hand-held electronic, trading
card, role-playing and DVD games, as well as electronic learning
aids and puzzles. Toy offerings include boys action
figures, vehicles and playsets, girls toys, electronic
toys, plush products, preschool toys and infant products,
electronic interactive products, creative play and toy related
specialty products. In addition, we license certain of our
trademarks, characters and other property rights to third
parties for use in connection with digital gaming, consumer
promotions, and for the sale of non-competing toys and games and
non-toy products.
Organizationally, our principal segments are U.S. and
Canada and International. Both of these segments engage in the
marketing and selling of various toy and game products as listed
above. Our toy, game and puzzle products are developed by a
global development group. We also have a global marketing
function which establishes brand direction and assists the
segments in establishing certain local marketing programs. The
costs of these groups are allocated to the principal segments.
Our U.S. and Canada segment covers the United States and
Canada while the International segment primarily includes
Europe, the Asia Pacific region and Latin and South America
(including Mexico). Financial information with respect to our
segments and geographic areas is included in note 16 to our
financial statements, which are included in Item 8 of this
Form 10-K.
In addition, our Global Operations segment is responsible for
arranging product manufacturing and sourcing for the
U.S. and Canada and International segments and our Other
segment out-licenses our intellectual property to third parties
on a worldwide basis, including licensing of the Companys
intellectual property for use in digital games.
U.S.
and Canada
The U.S. and Canada segments strategy is based on
growing its core brands through innovation and reinvention,
introducing new initiatives driven by consumer and marketplace
insights and leveraging opportunistic toy and game lines and
licenses. This strategy includes increasing visibility of the
Companys core brands through entertainment, such as motion
pictures, television and publishing. Major 2008 brands and
products included STAR WARS, TRANSFORMERS, LITTLEST PET SHOP,
NERF, PLAYSKOOL, MARVEL products, MONOPOLY, FURREAL FRIENDS,
MAGIC: THE GATHERING, and BABY ALIVE. In the U.S. and
Canada segment, our products were organized into the following
categories in 2008: (i) games and puzzles;
(ii) boys toys; (iii) girls toys;
(iv) preschool toys; (v) tween toys; and
(vi) other.
Our games and puzzles category includes several well known
brands, including MILTON BRADLEY, PARKER BROTHERS, TRIVIAL
PURSUIT, CRANIUM, AVALON HILL and WIZARDS OF THE COAST. These
brand portfolios consist of a broad assortment of games for
children, tweens, families and adults. Core game brands include
MONOPOLY, BATTLESHIP, GAME OF LIFE, SCRABBLE, CHUTES AND
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LADDERS, CANDY LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY
HUNGRY HIPPOS, CONNECT FOUR, TWISTER, YAHTZEE, CRANIUM, JENGA,
SIMON, CLUE, SORRY!, RISK, BOGGLE, TRIVIAL PURSUIT and GUESS
WHO?, as well as a line of puzzles for children and adults,
including the BIG BEN and CROXLEY lines of puzzles. WIZARDS OF
THE COAST offers trading card and role-playing games, including
MAGIC: THE GATHERING and DUNGEONS & DRAGONS. We seek
to keep our core brands relevant through sustained marketing
programs as well as by offering consumers new ways to experience
these brands. In 2008, we acquired Cranium, Inc., which resulted
in an extension of our core brand portfolio of games. The
Cranium brand includes a range of products targeted to kids,
families and adults. In addition, we hope to increase the reach
of our brands through our strategic alliance with Electronic
Arts Inc. (EA) which expands our brands to a variety
of new digital platforms.
Our boys toys include a wide range of core brands such as
G.I. JOE and TRANSFORMERS action figures and accessories as well
as entertainment-based licensed products based on popular movie,
television and comic book characters, such as STAR WARS and
MARVEL toys and accessories. In the action figure area, a key
part of our strategy focuses on the importance of reinforcing
the storyline associated with these products through the use of
media-based entertainment. In 2008, sales in our boys toys
category also benefited from major motion picture releases of
IRONMAN, THE INCREDIBLE HULK, and INDIANA JONES AND THE KINGDOM
OF THE CRYSTAL SKULL. In addition, STAR WARS, SPIDER-MAN and
TRANSFORMERS products were supported by animated television
series. In 2009, the major motion pictures G.I. JOE: THE RISE OF
COBRA and TRANSFORMERS: REVENGE OF THE FALLEN are expected to be
released based on our G.I. JOE and TRANSFORMERS brands. In
addition, the Company expects product revenues from the 2009
release of the motion picture, X-MEN ORIGINS: WOLVERINE, based
on the MARVEL character. In addition to marketing and developing
action figures for traditional play, the Company also develops
and markets products designed for collectors, which has been a
key component of the success of the STAR WARS brand.
In our girls toys category, we seek to provide a
traditional and wholesome play experience. Girls toys
include LITTLEST PET SHOP, MY LITTLE PONY, FURREAL FRIENDS and
BABY ALIVE brands. In 2009, we will seek to continue to grow and
refresh the LITTLEST PET SHOP brand through the introduction of
new characters. In addition, in 2009, we plan to expand our
presence in this category by introducing a full line of
STRAWBERRY SHORTCAKE toys.
Our preschool toys category encompasses a range of products for
infants and preschoolers in the various stages of development.
Our preschool products include a portfolio of core brands
marketed primarily under the PLAYSKOOL trademark. The PLAYSKOOL
line includes such well-known products as MR. POTATO HEAD,
WEEBLES, SIT N SPIN and GLOWORM, along with a successful
line of infant toys including STEP START WALK N RIDE,
2-IN-1 TUMMY TIME GYM and BUSY BALL POPPER. Through our
AGES & STAGES system, we seek to provide consumer
friendly information that assists parents in understanding the
developmental milestones their children will encounter as well
as the role each PLAYSKOOL product can play in helping children
to achieve these developmental milestones. In addition, our
preschool category also includes the TONKA line of trucks and
interactive toys and the PLAY-DOH brand.
Over the last several years our tweens toys category generally
marketed products under the TIGER and NERF brands and sought to
target those children who have outgrown traditional toys. The
age group targeted by this category was generally 8 to
12 years old. The major tweens toys product lines in 2008
were NERF and I-DOG. In recent years, we have used our consumer
insights and electronic innovation to develop a strong line of
products focusing on this target audience; however, as consumer
electronics have become more affordable to this age group, this
category has become less relevant. As a result, we have seen a
reduction in demand for many tween electronic products as the
target consumers have increasingly embraced adult consumer
electronics. We also have not achieved the profit margins on
many of the tween electronic products which we considered
necessary. For that reason, starting in 2009 we will no longer
have a tweens product category. However, we do plan to continue
to opportunistically offer electronic products which we believe
can be successful items. Going forward, those items will be
offered under either our boys or girls categories.
For example, starting in 2009, I-DOG will be managed under the
girls toys category. In addition, our NERF and
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SUPER SOAKER products have been highly successful and starting
in 2009 will be managed as part of the boys toys category.
International
In addition to our business in the United States and Canada, our
International segment sells a representative range of the toy
and game products marketed in the U.S. and Canada segment
as discussed above, together with some items that are sold only
internationally. These products are sold directly to retailers
and wholesalers in most countries in Europe, Asia Pacific and
Latin and South America and through distributors in those
countries where we have no presence. The products sold
internationally are managed under the same categories as in the
U.S. and Canada. The major geographic regions included in
the International segment are Europe, Asia Pacific and Latin and
South America, including Mexico. In addition to growing core
brands and leveraging opportunistic toy lines and licenses, we
seek to grow our international business by continuing to expand
into Eastern Europe and emerging markets in Asia and Latin and
South America. In 2008, we expanded our operations in Brazil,
China, Russia, the Czech Republic and Korea. Key international
brands for 2008 included LITTLEST PET SHOP, PLAYSKOOL,
TRANSFORMERS, STAR WARS, MONOPOLY, MY LITTLE PONY and MARVEL.
Other
Segments
In our Global Operations segment, we manufacture and source
production of substantially all of our toy and game products.
The Company owns and operates manufacturing facilities in East
Longmeadow, Massachusetts and Waterford, Ireland. Sourcing of
our other production is done through unrelated manufacturers in
various Far East countries, principally China, using a Hong Kong
based wholly-owned subsidiary operation for quality control and
order coordination purposes. See Manufacturing and
Importing below for more details concerning overseas
manufacturing and sourcing.
Through our Other segment we generate revenue through the
out-licensing worldwide of certain of our intellectual
properties to third parties for promotional and merchandising
uses in businesses which do not compete directly with our own
product offerings. During 2008, our Other segment out-licensed
our brands primarily in apparel, publishing, home goods and
electronics, and certain brands in the digital area. One of the
primary goals of this segment is to further expand our brands
into the digital world through strategic licenses. As an
example, we have a long-term strategic licensing alliance with
Electronic Arts Inc. (EA), which provides EA with
the exclusive worldwide rights to create digital games for all
major platforms, including mobile phones, personal computers,
and game consoles such as XBOX, PLAYSTATION and WII, based on
most of our toy and game intellectual properties. The first
games generated under this strategic alliance were introduced in
2008, with a full line expected in 2009. In 2009, the Company
expects its licensing revenues to be positively impacted by the
major motion picture releases of G.I. JOE: RISE OF COBRA and
TRANSFORMERS: REVENGE OF THE FALLEN.
Other
Information
To further extend our range of products in the various segments
of our business, we sell our toy and game products directly to
retailers, primarily on a direct import basis from the Far East.
These sales are reflected in the revenue of the related segment
where the customer resides.
Certain of our products are licensed to other companies for sale
in selected countries where we do not otherwise have a direct
business presence.
No individual line of products accounted for 10% or more of our
consolidated net revenues during our 2008 and 2006 fiscal years.
During the 2007 fiscal year, revenues generated from
TRANSFORMERS products were approximately $482,000, which was
12.6% of our consolidated net revenues in 2007. No other line of
products constituted 10% or more of our consolidated net
revenues in 2007.
3
Working
Capital Requirements
Our working capital needs are primarily financed through cash
generated from operations and, when necessary, proceeds from
short-term borrowings and our accounts receivable securitization
program. Our borrowings and the use of our accounts receivable
program generally reach peak levels during the third quarter of
each year. This corresponds to the time of year when our
receivables also generally reach peak levels as part of the
production and shipment of product in preparation for the
holiday season. The strategy of retailers has generally been to
make a higher percentage of their purchases of toy and game
products within or close to the fourth quarter holiday consumer
buying season, which includes Christmas. We expect that
retailers will continue to follow this strategy. Our historical
revenue pattern is one in which the second half of the year is
more significant to our overall business than the first half
and, within the second half of the year, the fourth quarter is
generally more predominant. In 2008, the second half of the year
accounted for approximately 63% of full year revenues with the
third and fourth quarters accounting for 32% and 31% of full
year revenues, respectively. In years where the Company has
products tied to a major motion picture release, such as in 2008
with the mid-year releases of IRONMAN, THE INCREDIBLE HULK and
INDIANA JONES AND THE KINGDOM OF THE CRYSTAL SKULL, and in 2007
with the mid-year releases of SPIDER-MAN 3 and TRANSFORMERS,
this concentration may not be as pronounced due to the higher
level of sales that occur around and just prior to the time of
the motion picture theatrical release.
The toy and game business is also characterized by customer
order patterns which vary from year to year largely because of
differences each year in the degree of consumer acceptance of
product lines, product availability, marketing strategies and
inventory policies of retailers, the dates of theatrical
releases of major motion pictures for which we have product
licenses, and changes in overall economic conditions. As a
result, comparisons of our unshipped orders on any date with
those at the same date in a prior year are not necessarily
indicative of our sales for that year. Moreover, quick response
inventory management practices result in fewer orders being
placed significantly in advance of shipment and more orders
being placed for immediate delivery. Retailers are timing their
orders so that they are being filled by suppliers, such as us,
closer to the time of purchase by consumers. Unshipped orders at
January 25, 2009 and January 27, 2008 were
approximately $108,000 and $149,000, respectively. It is a
general industry practice that orders are subject to amendment
or cancellation by customers prior to shipment. The backlog of
unshipped orders at any date in a given year can also be
affected by programs that we may employ to incent customers to
place orders and accept shipments early in the year. These
programs follow general industry practices. The types of
programs that we plan to employ to promote sales in 2009 are
substantially the same as those we employed in 2008. In the
fourth quarter of 2008 we increased our support of retailers as
a result of the weak retail environment. The Company currently
does not expect to have similar incremental promotional programs
in 2009.
Historically, we commit to the majority of our inventory
production and advertising and marketing expenditures for a
given year prior to the peak third and fourth quarter retail
selling season. Our accounts receivable increase during the
third and fourth quarter as customers increase their purchases
to meet expected consumer demand in the holiday season. Due to
the concentrated timeframe of this selling period, payments for
these accounts receivable are generally not due until later in
the fourth quarter or early in the first quarter of the
subsequent year. The timing difference between expenses paid and
revenues collected sometimes makes it necessary for us to borrow
varying amounts during the year. During 2008, we utilized cash
from our operations, borrowings under our secured amended and
restated revolving credit agreements as well as our uncommitted
lines of credit, and proceeds from our accounts receivable
securitization program to meet our cash flow requirements.
Royalties,
Research and Development
Our success is dependent on innovation, including both the
continuing development of new products and the redesign of
existing products for continued market acceptance. Our toy, game
and puzzle products are developed by a global development group
and the costs of this group are allocated to the selling
entities which comprise our operating segments. In 2008, 2007,
and 2006, we spent $191,424, $167,194 and $171,358,
respectively, on activities relating to the development, design
and engineering of new products and their packaging (including
products brought to us by independent designers) and on the
improvement or
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modification of ongoing products. Much of this work is performed
by our internal staff of designers, artists, model makers and
engineers.
In addition to the design and development work performed by our
own staff, we deal with a number of independent toy and game
designers for whose designs and ideas we compete with other toy
and game manufacturers. Rights to such designs and ideas, when
acquired by us, are usually exclusive and the agreements require
us to pay the designer a royalty on our net sales of the item.
These designer royalty agreements, in some cases, also provide
for advance royalties and minimum guarantees.
We also produce a number of toys and games under trademarks and
copyrights utilizing the names or likenesses of characters from
movies, television shows and other entertainment media, for
whose rights we compete with other toy and game manufacturers.
Licensing fees for these rights are generally paid as a royalty
on our net sales of the item. Licenses for the use of characters
are generally exclusive for specific products or product lines
in specified territories. In many instances, advance royalties
and minimum guarantees are required by these license agreements.
In 2008, 2007, and 2006, we incurred $312,986, $316,807 and
$169,731, respectively, of royalty expense. A portion of this
expense relates to amounts paid in prior years as royalty
advances. Our royalty expenses in any given year vary depending
upon the timing of movie releases and other entertainment.
Royalty expense in 2008 and 2007 was more significant in those
years as compared to 2006 due to the release of IRONMAN, THE
INCREDIBLE HULK and INDIANA JONES AND THE KINGDOM OF THE CRYSTAL
SKULL in 2008 and SPIDER-MAN 3 and TRANSFORMERS in 2007. In
addition, royalty expense related to sales of STAR WARS products
were significant in both of these years.
Marketing
and Sales
As we are focused on reimagining, reinventing and reigniting our
many brands on a consistent global basis, we have a global
marketing function which establishes brand direction and
messaging, as well as assists the selling entities in
establishing certain local marketing programs. The costs of this
group are allocated to the selling entities. Our products are
sold nationally and internationally to a broad spectrum of
customers, including wholesalers, distributors, chain stores,
discount stores, mail order houses, catalog stores, department
stores and other traditional retailers, large and small, as well
as internet-based
e-tailers.
Our own sales forces account for the majority of sales of our
products. Remaining sales are generated by independent
distributors who sell our products, for the most part, in areas
of the world where we do not otherwise maintain a direct
presence. While we have thousands of customers, including over
1,800 in the United States during 2008, there has been
significant consolidation at the retail level over the last
several years in our industry. As a result, the majority of our
sales are to large chain stores, distributors and wholesalers.
While the consolidation of customers provides us with certain
benefits, such as potentially more efficient product
distribution and other decreased costs of sales and
distribution, this consolidation also creates additional risks
to our business associated with a major customer having
financial difficulties or reducing its business with us. In
addition, customer concentration may decrease the prices we are
able to obtain for some of our products and reduce the number of
products we would otherwise be able to bring to market. During
2008, net revenues from our three largest customers, Wal-Mart
Stores, Inc., Target Corporation and Toys R Us,
Inc., represented 25%, 12% and 10%, respectively, of
consolidated net revenues, and sales to our top five customers,
including Wal-Mart, Target and Toys R Us, Inc.,
accounted for approximately 52% of our consolidated net
revenues. In the U.S. and Canada segment, approximately 71%
of the net revenues of the segment were derived from our top
three customers.
We advertise many of our toy and game products extensively on
television. Generally our advertising highlights selected items
in our various product groups in a manner designed to promote
the sale of not only the selected item, but also other items we
offer in those product groups as well. We introduce many of our
new products to major customers during the year prior to the
year of introduction of such products for retail sale. In
addition, we showcase certain of our new products in New York
City at the time of the American International Toy Fair in
February, as well as at other international toy shows.
In 2008 we spent $454,612 on advertising, promotion and
marketing programs compared to $434,742 in 2007 and $368,996 in
2006.
5
Manufacturing
and Importing
During 2008 substantially all of our products were manufactured
in third party facilities in the Far East, primarily China, as
well as in our two owned facilities located in East Longmeadow,
Massachusetts and Waterford, Ireland.
Most of our products are manufactured from basic raw materials
such as plastic, paper and cardboard, although certain products
also make use of electronic components. All of these materials
are readily available but may be subject to significant
fluctuations in price. There are certain chemicals (including
phthalates and BPA) that national, state and local governments
have restricted or are seeking to restrict or limit the use of;
however, we do not believe these restrictions will materially
impact our business. We generally enter into agreements with
suppliers at the beginning of a fiscal year that establish
prices for that year. However, significant volatility in the
prices of any of these materials may require renegotiation with
our suppliers during the year. Our manufacturing processes and
those of our vendors include injection molding, blow molding,
spray painting, printing, box making and assembly. We purchase
most of the components and accessories used in our toys and
certain of the components used in our games, as well as some
finished items, from manufacturers in the United States and in
other countries. However, the countries of the Far East, and
particularly the Peoples Republic of China, constitute the
largest manufacturing center of toys in the world and the
substantial majority of our toy products are manufactured in
China. The 1996 implementation of the General Agreement on
Tariffs and Trade reduced or eliminated customs duties on many
of the products imported by us.
We believe that the manufacturing capacity of our third party
manufacturers, together with our own facilities, as well as the
supply of components, accessories and completed products which
we purchase from unaffiliated manufacturers, are adequate to
meet the anticipated demand in 2009 for our products. Our
reliance on designated external sources of manufacturing could
be shifted, over a period of time, to alternative sources of
supply for our products, should such changes be necessary or
desirable. However, if we were to be prevented from obtaining
products from a substantial number of our current Far East
suppliers due to political, labor or other factors beyond our
control, our operations and our ability to obtain products would
be disrupted while alternative sources of product were secured.
The imposition of trade sanctions by the United States or the
European Union against a class of products imported by us from,
or the loss of normal trade relations status by, the
Peoples Republic of China, or other factors which increase
the cost of manufacturing in China, such as higher Chinese labor
costs or an appreciation in the yuan, could significantly
disrupt our operations
and/or
significantly increase the cost of the products which are
manufactured in China and imported into other markets.
We purchase dies and molds from independent United States and
international sources.
Competition
We are a worldwide leader in the design, manufacture and
marketing of games and toys, but our business is highly
competitive. We compete with several large toy and game
companies in our product categories, as well as many smaller
United States and international toy and game designers,
manufacturers and marketers. Competition is based primarily on
meeting consumer entertainment preferences and on the quality
and play value of our products. To a lesser extent, competition
is also based on product pricing.
In addition to contending with competition from other toy and
game companies, in our business we must deal with the phenomena
that many children have been moving away from traditional toys
and games at a younger age. We refer to this as children
getting older younger. As a result, our products not only
compete with the offerings of other toy and game manufacturers,
but we must compete, particularly in meeting the demands of
older children, with the entertainment offerings of many other
companies, such as makers of video games and consumer electronic
products.
The volatility in consumer preferences with respect to family
entertainment and low barriers to entry continually create new
opportunities for existing competitors and
start-ups to
develop products which compete with our toy and game offerings.
6
Employees
At December 28, 2008, we employed approximately
5,900 persons worldwide, approximately 3,200 of whom were
located in the United States.
Trademarks,
Copyrights and Patents
We seek to protect our products, for the most part, and in as
many countries as practical, through registered trademarks,
copyrights and patents to the extent that such protection is
available, cost effective, and meaningful. The loss of such
rights concerning any particular product is unlikely to result
in significant harm to our business, although the loss of such
protection for a number of significant items might have such an
effect.
Government
Regulation
Our toy and game products sold in the United States are subject
to the provisions of The Consumer Product Safety Act, as amended
by the Consumer Product Safety Improvement Act of 2008, (as
amended, the CPSA), The Federal Hazardous Substances
Act (the FHSA), The Flammable Fabrics Act (the
FFA), and the regulations promulgated thereunder. In
addition, certain of our products, such as the mixes for our
EASY-BAKE ovens, are also subject to regulation by the Food and
Drug Administration.
The CPSA empowers the Consumer Product Safety Commission (the
CPSC) to take action against hazards presented by
consumer products, including the formulation and implementation
of regulations and uniform safety standards. The CPSC has the
authority to seek to declare a product a banned hazardous
substance under the CPSA and to ban it from commerce. The
CPSC can file an action to seize and condemn an imminently
hazardous consumer product under the CPSA and may also
order equitable remedies such as recall, replacement, repair or
refund for the product. The FHSA provides for the repurchase by
the manufacturer of articles that are banned.
Consumer product safety laws also exist in some states and
cities within the United States and in certain foreign markets
such as Canada, Australia and Europe. We utilize laboratories
that employ testing and other procedures intended to maintain
compliance with the CPSA, the FHSA, the FFA, applicable
international standards, and our own standards. Notwithstanding
the foregoing, there can be no assurance that our products are
or will be hazard free. Any material product recall could have
an adverse effect on our results of operations or financial
condition, depending on the product and scope of the recall, and
could negatively affect sales of our other products as well.
The Childrens Television Act of 1990 and the rules
promulgated thereunder by the United States Federal
Communications Commission, as well as the laws of certain
foreign countries, also place limitations on television
commercials during childrens programming.
We maintain programs to comply with various United States
federal, state, local and international requirements relating to
the environment, plant safety and other matters.
Financial
Information about International and United States
Operations
The information required by this item is included in
note 16 of the Notes to Consolidated Financial Statements
included in Item 8 of Part II of this report and is
incorporated herein by reference.
Availability
of Information
Our internet address is
http://www.hasbro.com.
We make our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, available free of charge on or through our website as soon
as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission.
7
Forward-Looking
Information and Risk Factors That May Affect Future
Results
From time to time, including in this Annual Report on
Form 10-K
and in our annual report to shareholders, we publish
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements may relate to such
matters as our anticipated financial performance or business
prospects in future periods, expected technological and product
developments, the expected timing of new product introductions
or our expectations concerning the future acceptance of products
by customers, the timing of entertainment releases, marketing
and promotional efforts, research and development activities,
liquidity, and similar matters. Forward-looking statements are
inherently subject to risks and uncertainties. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. These statements may be
identified by the use of forward-looking words or phrases such
as anticipate, believe,
could, expect, intend,
looking forward, may,
planned, potential, should,
will and would or any variations of
words with similar meanings. We note that a variety of factors
could cause our actual results and experience to differ
materially from the anticipated results or other expectations
expressed or anticipated in our forward-looking statements. The
factors listed below are illustrative and other risks and
uncertainties may arise as are or may be detailed from time to
time in our public announcements and our filings with the
Securities and Exchange Commission, such as on
Forms 8-K,
10-Q and
10-K. We
undertake no obligation to make any revisions to the
forward-looking statements contained in this Annual Report on
Form 10-K
or in our annual report to shareholders to reflect events or
circumstances occurring after the date of the filing of this
report. Unless otherwise specifically indicated, all dollar or
share amounts herein are expressed in thousands of dollars or
shares, except for per share amounts.
The
volatility of consumer preferences, combined with the high level
of competition and low barriers to entry in the family
entertainment industry, make it difficult to maintain the
success of existing products and product lines or introduce
successful new products. In addition, an inability to develop
and introduce planned new products and product lines in a timely
and cost-effective manner may damage our business.
The family entertainment business is a fashion industry. Our
success is critically dependent upon the consumer appeal of our
products, principally games and toys. Our failure to
successfully anticipate, identify and react to childrens
interests and the current preferences in family entertainment
could significantly lower sales of our products and harm our
sales and profitability.
A decline in the popularity of our existing products and product
lines, or the failure of our new products and product lines to
achieve and sustain market acceptance with retailers and
consumers, could significantly lower our revenues and operating
margins, which would in turn harm our profitability, business
and financial condition. In our industry, it is important to
identify and offer what are considered to be the hot
toys and games on childrens wish lists. Our
continued success will depend on our ability to develop, market
and sell popular toys and games and license our brands for
products which are sought after by both children and their
parents. We seek to achieve and maintain market popularity for
our products through the redesign and extension of our existing
family entertainment properties in ways we believe will capture
evolving consumer interest and imagination and remain relevant
in todays world, and by developing, introducing and
gaining customer interest for new family entertainment products.
This process involves anticipating and extending successful play
patterns and identifying entertainment concepts and properties
that appeal to childrens imaginations. However, consumer
preferences with respect to family entertainment are
continuously changing and are difficult to anticipate. Evolving
consumer tastes, coupled with an ever changing pipeline of
entertainment properties and products which compete for consumer
interest and acceptance, creates an environment in which
products can be extremely popular during a certain period in
time but then rapidly be replaced in consumers minds with
other properties. As a result, individual family entertainment
products and properties often have short consumer life cycles.
Not only must we address rapidly changing consumer tastes and
interests but we face competitors who are also constantly
monitoring consumer tastes, seeking ideas which will appeal to
consumers and introducing new products that compete with our
products for consumer purchasing. In addition to existing
competitors, the
8
barriers to entry for new participants in the family
entertainment industry are low. New participants with a popular
product idea or entertainment property can gain access to
consumers and become a significant source of competition for our
products. In some cases our competitors products may
achieve greater market acceptance than our products and
potentially reduce demand for our products.
The challenge of developing and offering products that are
sought after by children is compounded by the trend of children
getting older younger. By this we mean that children
are losing interest in traditional toys and games at younger
ages and, as a result, at younger and younger ages, our products
compete with the offerings of video game suppliers, consumer
electronics companies and other businesses outside of the
traditional toy and game industry.
There is no guarantee that:
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Any of our current products or product lines will continue to be
popular;
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Any property for which we have a significant license will
achieve or sustain popularity;
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Any new products or product lines we introduce will be
considered interesting to consumers and achieve an adequate
market acceptance;
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Any new products life cycle will be sufficient to permit
us to profitably recover development, manufacturing, marketing,
royalties (including royalty advances and guarantees) and other
costs of producing, marketing and selling the product; or
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We will be able to manufacture, source and ship new or
continuing products in a timely and cost-effective basis to meet
constantly changing consumer demands, a risk that is heightened
by our customers compressed shipping schedules and the
seasonality of our business.
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In developing new products and product lines, we have
anticipated dates for the associated product introductions. When
we state that we will introduce, or anticipate introducing, a
particular product or product line at a certain time in the
future those expectations are based on completing the associated
development and implementation work in accordance with our
currently anticipated development schedule. Unforeseen delays or
difficulties in the development process, or significant
increases in the planned cost of development, may cause the
introduction date for products to be later than anticipated or,
in some situations, may cause a product introduction to be
discontinued.
Similarly, the success of our products is often dependent on the
timelines and effectiveness of related advertising and media
efforts. Television programming, movie and DVD releases, comic
book releases, and other media efforts are often critical in
generating interest in our products. Not only our efforts, but
the efforts of third parties, heavily impact the launch dates
and success of these media efforts. When we say that products or
brands will be supported by certain media releases, those
statements are based on our current plans and expectations.
Unforeseen factors may delay these media releases or even lead
to their cancellation. Any delay or cancellation of planned
product development work, introductions, or media support may
decrease the number of products we sell and harm our business.
Economic
downturns which negatively impact the retail and credit markets,
or which otherwise damage the financial health of our retail
customers and consumers, can harm our business and financial
performance.
The success of our family entertainment products and our
financial performance is dependent on consumer purchases of our
products. Consumers may not purchase our products because the
products do not capture consumer interest and imagination, or
because competitor family entertainment offerings are deemed
more attractive. But consumer spending on our products can also
be harmed by factors that negatively impact consumers
budgets generally, and which are not due to our product
offerings.
Recessions and other economic downturns, or disruptions in
credit markets, in the markets in which we operate can result in
lower levels of economic activity, lower employment levels, less
consumer disposable
9
income, and lower consumer confidence. Any of these factors can
reduce the amount which consumers spend on the purchase of our
products. This in turn can reduce our revenues and harm our
financial performance.
In addition to experiencing potentially lower revenues from our
products during times of economic difficulty, in an effort to
maintain sales during such times we may need to reduce the price
of our products, increase our promotional spending, or take
other steps to encourage retailer and consumer purchase of our
products. Those steps may lower our net revenues, decrease our
operating margins, increase our costs
and/or lower
our profitability.
Other
economic and public health conditions in the markets in which we
operate, including rising commodity and fuel prices, higher
labor costs, increased transportation costs, outbreaks of SARs
or other diseases, or third party conduct could negatively
impact our ability to produce and ship our products, and lower
our revenues, margins and profitability.
Various economic and public health conditions can impact our
ability to manufacture and deliver products in a timely and
cost-effective manner, or can otherwise have a significant
negative impact on our business.
Significant increases in the costs of other products which are
required by consumers, such as gasoline, home heating fuels, or
groceries, may reduce household spending on the discretionary
entertainment products we offer. As we discussed above, weakened
economic conditions, lowered employment levels or recessions in
any of our major markets may significantly reduce consumer
purchases of our products. Economic conditions may also be
negatively impacted by terrorist attacks, wars and other
conflicts, increases in critical commodity prices, or the
prospect of such events. Such a weakened economic and business
climate, as well as consumer uncertainty created by such a
climate, could harm our revenues and profitability.
Our success and profitability not only depend on consumer demand
for our products, but also on our ability to produce and sell
those products at costs which allow for profitable revenues.
Rising fuel and raw material prices, for components such as
resin used in plastics, increased transportation costs, and
increased labor costs in the markets in which our products are
manufactured all may increase the costs we incur to produce and
transport our products, which in turn may reduce our margins,
reduce our profitability and harm our business.
Other conditions, such as the unavailability of electrical
components, may impede our ability to manufacture, source and
ship new and continuing products on a timely basis. Additional
factors outside of our control could further delay our products
or increase the cost we pay to produce such products. For
example, work stoppages, slowdowns or strikes, an outbreak of
SARs or another severe public health pandemic, or the occurrence
or threat of wars or other conflicts, all could impact our
ability to manufacture or deliver product. Any of these factors
could result in product delays, increased costs
and/or lost
sales for our products.
We may
not realize the full benefit of our licenses if the licensed
material has less market appeal than expected or if revenue from
the licensed products is not sufficient to earn out the minimum
guaranteed royalties.
In addition to designing and developing products based on our
own brands, we seek to fulfill consumer preferences and
interests by producing products based on popular entertainment
properties developed by other parties and licensed to us. The
success of entertainment properties released theatrically for
which we have a license, such as MARVEL or STAR WARS related
products, can significantly affect our revenues and
profitability. If we produce a line of products based on a movie
or television series, the success of the movie or series has a
critical impact on the level of consumer interest in the
associated products we are offering. In addition, competition in
our industry for access to entertainment properties can lessen
our ability to secure, maintain, and renew popular licenses to
entertainment products on beneficial terms, if at all, and to
attract and retain the talented employees necessary to design,
develop and market successful products based on these
properties. The loss of rights granted pursuant to any of our
licensing agreements could harm our business and competitive
position.
10
The license agreements we enter to obtain these rights usually
require us to pay minimum royalty guarantees that may be
substantial, and in some cases may be greater than what we are
ultimately able to recoup from actual sales, which could result
in write-offs of significant amounts which in turn would harm
our results of operations. At December 28, 2008, we had
$71,000 of prepaid royalties, $44,300 of which are included in
prepaid expenses and other current assets and $26,700 of which
are included in other assets. Under the terms of existing
contracts as of December 28, 2008, we may be required to
pay future minimum guaranteed royalties and other licensing fees
totaling approximately $57,818. Acquiring or renewing licenses
may require the payment of minimum guaranteed royalties that we
consider to be too high to be profitable, which may result in
losing licenses we currently hold when they become available for
renewal, or missing business opportunities for new licenses.
Additionally, as a licensee of entertainment based properties we
have no guaranty that a particular property or brand will
translate into successful toy or game products.
We anticipate that the shorter theatrical duration for movie
releases will make it increasingly difficult for us to
profitably sell licensed products based on entertainment
properties and may lead our customers to reduce their demand for
these products in order to minimize their inventory risk.
Furthermore, there can be no assurance that a successful brand
will continue to be successful or maintain a high level of sales
in the future, as new entertainment properties and competitive
products are continually being introduced to the market. In the
event that we are not able to acquire or maintain successful
entertainment licenses on advantageous terms, our revenues and
profits may be harmed.
Our
business is seasonal and therefore our annual operating results
will depend, in large part, on our sales during the relatively
brief holiday shopping season. This seasonality is exacerbated
as retailers become more efficient in their control of inventory
levels through quick response inventory management
techniques.
Sales of our family entertainment products at retail are
extremely seasonal, with a majority of retail sales occurring
during the period from September through December in
anticipation of the holiday season, including Christmas. This
seasonality has increased over time, as retailers become more
efficient in their control of inventory levels through quick
response inventory management techniques. These customers are
timing their orders so that they are being filled by suppliers,
such as us, closer to the time of purchase by consumers. For
toys, games and other family entertainment products which we
produce, a majority of retail sales for the entire year occur in
the fourth quarter, close to the holiday season. As a
consequence, the majority of our sales to our customers occur in
the period from September through December, as our customers do
not want to maintain large on-hand inventories throughout the
year ahead of consumer demand. While these techniques reduce a
retailers investment in inventory, they increase pressure
on suppliers like us to fill orders promptly and thereby shift a
significant portion of inventory risk and carrying costs to the
supplier.
The limited inventory carried by retailers may also reduce or
delay retail sales, resulting in lower revenues for us. If we or
our customers determine that one of our products is more popular
at retail than was originally anticipated, we may not have
sufficient time to produce and ship enough additional product to
fully capture consumer interest in the product. Additionally,
the logistics of supplying more and more product within shorter
time periods increases the risk that we will fail to achieve
tight and compressed shipping schedules, which also may reduce
our sales and harm our financial performance. This seasonal
pattern requires significant use of working capital, mainly to
manufacture or acquire inventory during the portion of the year
prior to the holiday season, and requires accurate forecasting
of demand for products during the holiday season in order to
avoid losing potential sales of popular products or producing
excess inventory of products that are less popular with
consumers. Our failure to accurately predict and respond to
consumer demand, resulting in our underproducing popular items
and/or
overproducing less popular items, would reduce our total sales
and harm our results of operations. In addition, as a result of
the seasonal nature of our business, we would be significantly
and adversely affected, in a manner disproportionate to the
impact on a company with sales spread more evenly throughout the
year, by unforeseen events, such as a terrorist attack or
economic shock, that harm the retail environment or consumer
buying patterns during our key selling season, or by events,
such as strikes or port delays, that interfere with the shipment
of goods, particularly from the Far East, during the critical
months leading up to the holiday purchasing season.
11
Our
substantial sales and manufacturing operations outside the
United States subject us to risks associated with international
operations. Among these risks is the fact that fluctuations in
foreign exchange rates can significantly impact our financial
performance.
We operate facilities and sell products in numerous countries
outside the United States. For the year ended December 28,
2008, our net revenues from international customers comprised
approximately 42% of our total consolidated net revenues. We
expect our sales to international customers to continue to
account for a significant portion of our revenues. Additionally,
as we discuss below, we utilize third-party manufacturers
located principally in the Far East, to produce the majority of
our products, and we have a manufacturing facility in Ireland.
These sales and manufacturing operations are subject to the
risks associated with international operations, including:
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Currency conversion risks and currency fluctuations;
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Limitations, including taxes, on the repatriation of earnings;
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Political instability, civil unrest and economic instability;
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Greater difficulty enforcing intellectual property rights and
weaker laws protecting such rights;
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Complications in complying with different laws in varying
jurisdictions and changes in governmental policies;
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Natural disasters and the greater difficulty and expense in
recovering therefrom;
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Difficulties in moving materials and products from one country
to another, including port congestion, strikes and other
transportation delays and interruptions;
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Changes in international labor costs and other costs of doing
business internationally; and
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The imposition of tariffs.
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Because of the importance of our international sales and
international sourcing of manufacturing to our business, our
financial condition and results of operations could be
significantly harmed if any of the risks described above were to
occur.
If the exchange rate between the United States dollar and a
local currency for an international market in which we have
significant sales or operations changes, our financial results,
reported in U.S. dollars, may be meaningfully impacted even
if our business in the local currency is not significantly
affected. As an example, if the dollar appreciates 10% relative
to a local currency for an international market in which we had
$200 million of net sales, the dollar value of those sales,
as they are translated into U.S. dollars, would decrease by
$20 million in our consolidated financial results. As such,
we would recognize a $20 million decrease in our net
revenues, even if the actual level of sales in the foreign
market had not changed. Similarly, our expenses in foreign
markets can be significantly impacted, in U.S. dollar
terms, by exchange rates, meaning the profitability of our
business in U.S. dollar terms can be significantly harmed
by exchange rate movements.
The
consolidation of our retail customer base means that economic
difficulties or changes in the purchasing policies of our major
customers could have a significant impact on us.
We depend upon a relatively small retail customer base to sell
the majority of our products. For the fiscal year ended
December 28, 2008, Wal-Mart Stores, Inc., Target
Corporation, and Toys R Us, Inc., accounted for
approximately 25%, 12% and 10%, respectively, of our
consolidated net revenues and our five largest customers,
including Wal-Mart, Target and Toys R Us, in the
aggregate accounted for approximately 52% of our consolidated
net revenues. In the U.S. and Canada segment, approximately
71% of the net revenues of the segment were derived from our top
three customers. While the consolidation of our customer base
may provide certain benefits to us, such as potentially more
efficient product distribution and other decreased costs of
sales and distribution, this consolidation also means that if
one or more of our major customers were to experience
difficulties in fulfilling their obligations to us, cease doing
business with us, significantly reduce
12
the amount of their purchases from us or return substantial
amounts of our products, it could significantly harm our sales,
profitability and financial condition. Increased concentration
among our customers could also negatively impact our ability to
negotiate higher sales prices for our products and could result
in lower gross margins than would otherwise be obtained if there
were less consolidation among our customers. In addition, the
bankruptcy or other lack of success of one or more of our
significant retail customers could negatively impact our
revenues and bad debt expense.
Our
use of third-party manufacturers to produce the majority of our
toy products, as well as certain other products, presents risks
to our business.
We own and operate two game and puzzle manufacturing facilities,
one in East Longmeadow, Massachusetts and the other in
Waterford, Ireland. However, most of our toy products, in
addition to certain other products, are manufactured by
third-party manufacturers, most of whom are located in the
Peoples Republic of China. Although our external sources
of manufacturing can be shifted, over a period of time, to
alternative sources of supply, should such changes be necessary,
if we were prevented or delayed in obtaining products or
components for a material portion of our product line due to
political, labor or other factors beyond our control, our
operations would be disrupted, potentially for a significant
period of time, while alternative sources of supply were
secured. This delay could significantly reduce our revenues and
profitability, and harm our business.
Given that the majority of our manufacturing is conducted by
third-party manufacturers located in the Peoples Republic
of China, health conditions and other factors affecting social
and economic activity in China and affecting the movement of
people and products into and from China to our major markets,
including North America and Europe, as well as increases in the
costs of labor and other costs of doing business in China, could
have a significant negative impact on our operations, revenues
and earnings. Factors that could negatively affect our business
include a potential significant revaluation of the Chinese yuan,
which may result in an increase in the cost of producing
products in China, increases in labor costs and difficulties in
moving products manufactured in China out of Asia and through
the ports on the western coast of North America, whether due to
port congestion, labor disputes, product regulations
and/or
inspections or other factors. Also, the imposition of trade
sanctions or other regulations by the United States or the
European Union against products imported by us from, or the loss
of normal trade relations status with, the
Peoples Republic of China, could significantly increase
our cost of products imported into the United States or Europe
and harm our business. Additionally, the suspension of the
operations of a third party manufacturer by government
inspectors in China could result in delays to us in obtaining
product and may harm sales.
We require our third-party manufacturers to comply with our
Global Business Ethics Principles, which are designed to prevent
products manufactured by or for us from being produced under
inhumane or exploitive conditions. The Global Business Ethics
Principles address a number of issues, including working hours
and compensation, health and safety, and abuse and
discrimination. In addition, Hasbro requires that our products
supplied by third-party manufacturers be produced in compliance
with all applicable laws and regulations, including consumer and
product safety laws in the markets where those products are
sold. Hasbro has the right, both directly and through the use of
outside monitors, to monitor compliance by our third-party
manufacturers with our Global Business Ethics Principles and
other manufacturing requirements. In addition, we do quality
assurance testing on our products, including products
manufactured for us by third parties. Notwithstanding these
requirements and our monitoring and testing of compliance with
them, there is always a risk that one or more of our third-party
manufacturers will not comply with our requirements and that we
will not immediately discover such non-compliance. Any failure
of our third-party manufacturers to comply with labor, consumer,
product safety or other applicable requirements in manufacturing
products for us could result in damage to our reputation, harm
sales of our products and potentially create liability for us.
13
Part
of our strategy for remaining relevant to older children is to
offer innovative childrens toy and game electronic
products. The margins on many of these products are lower than
more traditional toys and games and such products may have a
shorter lifespan than more traditional toys and games. As a
result, sales of childrens toy and game electronic
products may lower our overall operating margins and produce
more volatility in our business.
As children have grown older younger and have become
interested in more and more sophisticated and adult products,
such as videogames and consumer electronics, at younger and
younger ages, we have needed to work even harder to keep our
products relevant for these consumers. One initiative we have
pursued to capture the interest of older children is to offer
innovative childrens electronic toys and games. Examples
of such products in the last few years include VIDEONOW,
CHATNOW, ZOOMBOX, our I-branded products such as I-DOG and
I-CAT, and our FURREAL FRIENDS line of products, including
BUTTERSCOTCH, BISCUIT and KOTA. These products, if successful,
can be an effective way for us to connect with consumers and
increase sales. However, childrens electronics, in
addition to the risks associated with our other family
entertainment products, also face certain additional risks.
Our costs for designing, developing and producing electronic
products tend to be higher than for many of our other more
traditional products, such as board games and action figures.
The ability to recoup these higher costs through sufficient
sales quantities and to reflect higher costs in higher prices is
constrained by heavy competition in consumer electronics and
entertainment products, and can be further constrained by
difficult economic conditions. As a consequence, our margins on
the sales of electronic products tend to be lower than for more
traditional products and we can face increased risk of not
achieving sales sufficient to recover our costs. In addition,
the pace of change in product offerings and consumer tastes in
the electronics area is potentially even greater than for our
other products. This pace of change means that the window in
which a product can achieve and maintain consumer interest may
be even shorter.
We
rely on external financing, including our credit facilities and
accounts receivable securitization facility, to help fund our
operations. If we were unable to obtain or service such
financing, or if the restrictions imposed by such financing were
too burdensome, our business would be harmed.
Due to the seasonal nature of our business, in order to meet our
working capital needs, particularly those in the third and
fourth quarters, we rely on our revolving credit facility and
our other credit facilities for working capital. We currently
have a revolving credit agreement that expires in 2011, which
provides for a $300,000 committed revolving credit facility
which provides the Company the ability to request increases in
the committed facility in additional increments of $50,000,
subject to lender agreement, up to a total of $500,000. The
credit agreement contains certain restrictive covenants setting
forth leverage and coverage requirements, and certain other
limitations typical of an investment grade facility. These
restrictive covenants may limit our future actions, and
financial, operating and strategic flexibility. In addition, our
financial covenants were set at the time we entered into our
credit facility. Our performance and financial condition may not
meet our original expectations, causing us to fail to meet such
financial covenants. Non-compliance with our debt covenants
could result in us being unable to utilize borrowings under our
revolving credit facility and other bank lines, a circumstance
which potentially could occur when operating shortfalls would
most require supplementary borrowings to enable us to continue
to fund our operations.
As an additional source of working capital and liquidity, we
currently have a $250,000 accounts receivable securitization
program, which is increased to $300,000 for the period from
fiscal October through fiscal January. Under this program, we
sell on an ongoing basis, substantially all of our domestic
U.S. dollar denominated trade accounts receivable to a
bankruptcy remote special purpose entity. Under this facility,
the special purpose entity is able to sell, on a revolving
basis, undivided ownership interests in the eligible receivables
to bank conduits. During the term of the facility, we must
maintain certain performance ratios. If we fail to maintain
these ratios, we could be prevented from accessing this
cost-effective source of working capital and short-term
financing.
We believe that our cash flow from operations, together with our
cash on hand and access to existing credit facilities and our
accounts receivable securitization facility, are adequate for
current and planned needs
14
in 2009. However, our actual experience may differ from these
expectations. Factors that may lead to a difference include, but
are not limited to, the matters discussed herein, as well as
future events that might have the effect of reducing our
available cash balance, such as unexpected material operating
losses or increased capital or other expenditures, as well as
increases in inventory or accounts receivable that are
ineligible for sale under our securitization facility, or future
events that may reduce or eliminate the availability of external
financial resources.
Not only may our individual financial performance impact our
ability to access sources of external financing, but significant
disruptions to credit markets in general may also harm our
ability to obtain financing. Although we believe the risk of
nonperformance by the counterparties to our financial facilities
is not significant, in times of severe economic downturn
and/or
distress in the credit markets, it is possible that one or more
sources of external financing may be unable or unwilling to
provide funding to us. In such a situation, it may be that we
would be unable to access funding under our existing credit
facilities, and it might not be possible to find alternative
sources of funding.
We also may choose to finance our capital needs, from time to
time, through the issuance of debt securities. Our ability to
issue such securities on satisfactory terms, if at all, will
depend on the state of our business and financial condition, any
ratings issued by major credit rating agencies, market interest
rates, and the overall condition of the financial and credit
markets at the time of the offering. The condition of the credit
markets and prevailing interest rates have fluctuated
significantly in the past and are likely to fluctuate in the
future. Variations in these factors could make it difficult for
us to sell debt securities or require us to offer higher
interest rates in order to sell new debt securities. The failure
to receive financing on desirable terms, or at all, could damage
our ability to support our future operations or capital needs or
engage in other business activities.
As of December 28, 2008, we had $709,723 of total principal
amount of indebtedness outstanding. If we are unable to generate
sufficient available cash flow to service our outstanding debt
we would need to refinance such debt or face default. There is
no guarantee that we would be able to refinance debt on
favorable terms, or at all. This total indebtedness includes
$249,828 in aggregate principal amount of 2.75% senior
convertible debentures that we issued in 2001. On
December 1, 2011 and December 1, 2016, and upon the
occurrence of certain fundamental corporate changes, holders of
the 2.75% senior convertible debentures may require us to
purchase their debentures. At that time, the purchase price may
be paid in cash, shares of common stock or a combination of the
two, at our discretion, provided that we will pay accrued and
unpaid interest in cash. We may not have sufficient cash at that
time to make the required repurchases and may be required to
settle in shares of common stock.
As a
manufacturer of consumer products and a large multinational
corporation, we are subject to various government regulations
and may be subject to additional regulations in the future,
violation of which could subject us to sanctions or otherwise
harm our business. In addition, we could be the subject of
future product liability suits or product recalls, which could
harm our business.
As a manufacturer of consumer products, we are subject to
significant government regulations, including, in the United
States, under The Consumer Products Safety Act, The Federal
Hazardous Substances Act, and The Flammable Fabrics Act, as well
as under product safety and consumer protection statutes in our
international markets. In addition, certain of our products are
subject to regulation by the Food and Drug Administration or
similar international authorities. While we take all the steps
we believe are necessary to comply with these acts, there can be
no assurance that we will be in compliance in the future.
Failure to comply could result in sanctions which could have a
negative impact on our business, financial condition and results
of operations. We may also be subject to involuntary product
recalls or may voluntarily conduct a product recall. While costs
associated with product recalls have generally not been material
to our business, the costs associated with future product
recalls individually and in the aggregate in any given fiscal
year, could be significant. In addition, any product recall,
regardless of direct costs of the recall, may harm consumer
perceptions of our products and have a negative impact on our
future revenues and results of operations.
15
Governments and regulatory agencies in the markets where we
manufacture and sell products may enact additional regulations
relating to product safety and consumer protection in the
future, and may also increase the penalties for failure to
comply with product safety and consumer protection regulations.
In addition, one or more of our customers might require changes
in our products, such as the non-use of certain materials, in
the future. Complying with any such additional regulations or
requirements could impose increased costs on our business.
Similarly, increased penalties for non-compliance could subject
us to greater expense in the event any of our products were
found to not comply with such regulations. Such increased costs
or penalties could harm our business.
In addition to government regulation, products that have been or
may be developed by us may expose us to potential liability from
personal injury or property damage claims by the users of such
products. There can be no assurance that a claim will not be
brought against us in the future. Any successful claim could
significantly harm our business, financial condition and results
of operations.
As a large, multinational corporation, we are subject to a host
of governmental regulations throughout the world, including
antitrust, customs and tax requirements, anti-boycott
regulations and the Foreign Corrupt Practices Act. Our failure
to successfully comply with any such legal requirements could
subject us to monetary liabilities and other sanctions that
could harm our business and financial condition.
Our
business is dependent on intellectual property rights and we may
not be able to protect such rights successfully. In addition, we
have a material amount of acquired product rights which, if
impaired, would result in a reduction of our net
earnings.
Our intellectual property, including our license agreements and
other agreements that establish our ownership rights and
maintain the confidentiality of our intellectual property, are
of great value. We rely on a combination of trade secret,
copyright, trademark, patent and other proprietary rights laws
to protect our rights to valuable intellectual property related
to our brands. From time to time, third parties have challenged,
and may in the future try to challenge, our ownership of our
intellectual property. In addition, our business is subject to
the risk of third parties counterfeiting our products or
infringing on our intellectual property rights. We may need to
resort to litigation to protect our intellectual property
rights, which could result in substantial costs and diversion of
resources. Our failure to protect our intellectual property
rights could harm our business and competitive position. Much of
our intellectual property has been internally developed and has
no carrying value on our balance sheet. However, as of
December 28, 2008, we had $568,412 of acquired product and
licensing rights included in other assets on our balance sheet.
Declines in the profitability of the acquired brands or licensed
products may impact our ability to recover the carrying value of
the related assets and could result in an impairment charge.
Reduction in our net earnings caused by impairment charges could
harm our financial results.
We may
not realize the anticipated benefits of future acquisitions or
those benefits may be delayed or reduced in their
realization.
Acquisitions have been a significant part of our historical
growth and have enabled us to further broaden and diversify our
product offerings. In making acquisitions, we target companies
that we believe offer attractive family entertainment products
or the ability for us to leverage our entertainment offerings.
However, we cannot be certain that the products of companies we
may acquire, or acquire an interest in, in the future will
achieve or maintain popularity with consumers or that any such
acquired companies will allow us to more effectively market our
products. In some cases, we expect that the integration of the
companies that we acquire into our operations will create
production, marketing and other operating synergies which will
produce greater revenue growth and profitability and, where
applicable, cost savings, operating efficiencies and other
advantages. However, we cannot be certain that these synergies,
efficiencies and cost savings will be realized. Even if
achieved, these benefits may be delayed or reduced in their
realization. In other cases, we acquire companies that we
believe have strong and creative management, in which case we
plan to operate them more autonomously rather than fully
integrating them into our operations. We cannot be certain that
the key talented individuals at these companies will continue to
work for us after the acquisition or that they will develop
popular and profitable products or services in the future.
16
From
time to time, we are involved in litigation, arbitration or
regulatory matters where the outcome is uncertain and which
could entail significant expense.
As is the case with many large multinational corporations, we
are subject from time to time to regulatory investigations,
litigation and arbitration disputes. Because the outcome of
litigation, arbitration and regulatory investigations is
inherently difficult to predict, it is possible that the outcome
of any of these matters could entail significant expense for us
and harm our business. The fact that we operate in significant
numbers of international markets also increases the risk that we
may face legal and regulatory exposures as we attempt to comply
with a large number of varying legal and regulatory requirements.
We
have a material amount of goodwill which, if it becomes
impaired, would result in a reduction in our net
earnings.
Goodwill is the amount by which the cost of an acquisition
exceeds the fair value of the net assets we acquire. Current
accounting standards require that goodwill no longer be
amortized but instead be periodically evaluated for impairment
based on the fair value of the reporting unit. At
December 28, 2008, approximately $474,497 or 15.0%, of our
total assets represented goodwill. Declines in our profitability
may impact the fair value of our reporting units, which could
result in a write-down of our goodwill. Reductions in our net
earnings caused by the write-down of goodwill could harm our
results of operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Hasbro owns its corporate headquarters in Pawtucket, Rhode
Island consisting of approximately 343,000 square feet,
which is used in the U.S. and Canada, Global Operations and
Other segments as well as for corporate functions. The Company
also owns an adjacent building consisting of approximately
23,000 square feet that is used in the corporate function.
In addition, the Company leases a building in East Providence,
Rhode Island consisting of approximately 120,000 square
feet that is used in the corporate function as well as in the
Global Operations and Other segments. In addition to the above
facilities, the Company also leases office space consisting of
approximately 95,400 square feet in Renton, Washington as
well as warehouse space aggregating approximately
1,950,000 square feet in Georgia, California, Texas and
Quebec that are also used in the U.S. and Canada segment.
The Company owns manufacturing plants in East Longmeadow,
Massachusetts and Waterford, Ireland. The East Longmeadow plant
consists of approximately 1,148,000 square feet and is used
in the U.S. and Canada and Global Operations segments. The
Waterford plant consists of approximately 244,000 square
feet and is used in our Global Operations segment. The Global
Operations segment also leases an aggregate of
95,300 square feet of office and warehouse space in Hong
Kong used in this segment as well as approximately
52,300 square feet of office space leased in China.
In the International segment, the Company leases or owns
property in over 25 countries. The primary locations in the
International segment are in the United Kingdom, Mexico,
Germany, France, Spain, and Australia, all of which are
comprised of both office and warehouse space.
The above properties consist, in general, of brick, cinder block
or concrete block buildings which the Company believes are in
good condition and well maintained.
The Company believes that its facilities are adequate for its
needs. The Company believes that should it not be able to renew
any of the leases related to its leased facilities that it could
secure similar substitute properties without a material adverse
impact on its operations.
17
|
|
Item 3.
|
Legal
Proceedings
|
The Company has outstanding tax assessments from the Mexican tax
authorities relating to the years 2000, 2001, 2002 and 2003.
These tax assessments are based on transfer pricing issues
between the Companys subsidiaries with respect to the
Companys operations in Mexico. The Company has entered an
Administrative Appeal contesting the 2000 and 2001 assessments
and on June 3, 2008 the Company filed suit in the Federal
Tribunal of Fiscal and Administrative Justice in Mexico
challenging the 2002 assessment. The Company received the 2003
assessment in December of 2008, and plans to file suit in early
2009 challenging the 2003 assessment. The Company expects to be
successful in sustaining its positions for all of these years.
However, in order to challenge these outstanding tax
assessments, as is usual and customary in Mexico in these
matters, the Company was required to either make a deposit or
post a bond in the full amount of the assessments. The Company
elected to post a bond and accordingly, as of December 28,
2008, bonds totaling approximately $67.7 million (at
year-end 2008 exchange rates) have been posted related to the
2000, 2001 and 2002 assessments. The Company will be required to
either post a bond or pay a deposit of approximately
$25.7 million (at year-end 2008 exchange rates) related to
the 2003 assessment during the first quarter of 2009. These
bonds guarantee the full amounts of the outstanding tax
assessments in the event the Company is not successful in its
challenge to them.
We are currently party to certain other legal proceedings, none
of which we believe to be material to our business or financial
condition.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
Executive
Officers of the Registrant
The following persons are the executive officers of the Company.
Such executive officers are elected annually. The position(s)
and office(s) listed below are the principal position(s) and
office(s) held by such persons with the Company. The persons
listed below generally also serve as officers and directors of
certain of the Companys various subsidiaries at the
request and convenience of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
Serving in
|
|
|
|
|
|
|
Current
|
Name
|
|
Age
|
|
Position and Office Held
|
|
Position
|
|
Brian Goldner(1)
|
|
|
45
|
|
|
President and Chief Executive Officer
|
|
|
Since 2008
|
|
David D. R. Hargreaves(2)
|
|
|
56
|
|
|
Chief Operating Officer and Chief Financial Officer
|
|
|
Since 2008
|
|
John Frascotti(3)
|
|
|
48
|
|
|
Global Chief Marketing Officer
|
|
|
Since 2008
|
|
Duncan Billing(4)
|
|
|
50
|
|
|
Global Chief Development Officer
|
|
|
Since 2008
|
|
Barry Nagler(5)
|
|
|
52
|
|
|
Chief Legal Officer and Secretary
|
|
|
Since 2008
|
|
Deborah Thomas(6)
|
|
|
45
|
|
|
Senior Vice President, Head of Corporate Finance
|
|
|
Since 2008
|
|
Martin R. Trueb
|
|
|
56
|
|
|
Senior Vice President and Treasurer
|
|
|
Since 1997
|
|
|
|
|
(1) |
|
Prior thereto, Chief Operating Officer from 2006 to 2008; prior
thereto, President, U.S. Toys Segment from 2003 to 2006; prior
thereto, President, U.S. Toys, from 2001 to 2003. |
|
(2) |
|
Prior thereto, Executive Vice President, Finance and Global
Operations and Chief Financial Officer from 2007 to 2008; prior
thereto, Senior Vice President and Chief Financial Officer from
2001 to 2007. |
|
(3) |
|
Mr. Frascotti joined the Company in January 2008. Prior
thereto he was employed by Reebok International, Ltd., serving
as Senior Vice President, New Business, Acquisitions and
Licensing from 2002 to 2005, and as Senior Vice President,
Sports Division from 2005 to 2008. |
|
(4) |
|
Prior thereto, Chief Marketing Officer, U.S. Toy Group since
2004; prior thereto, General Manager, Big Kids Division, since
2002. |
18
|
|
|
(5) |
|
Prior thereto, Senior Vice President, General Counsel and
Secretary since 2001. |
|
(6) |
|
Prior thereto, Senior Vice President and Controller from 2003 to
2008; prior thereto, Vice President and Assistant Controller
from 1998 to 2003. |
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The Companys common stock, par value $.50 per share (the
Common Stock), is traded on the New York Stock
Exchange under the symbol HAS. The following table
sets forth the high and low sales prices as reported on the
Composite Tape of the New York Stock Exchange and the cash
dividends declared per share of Common Stock for the periods
listed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Prices
|
|
|
Cash Dividends
|
|
Period
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
29.07
|
|
|
|
21.57
|
|
|
$
|
0.20
|
|
2nd Quarter
|
|
|
39.63
|
|
|
|
27.73
|
|
|
|
0.20
|
|
3rd Quarter
|
|
|
41.68
|
|
|
|
33.23
|
|
|
|
0.20
|
|
4th Quarter
|
|
|
35.81
|
|
|
|
21.94
|
|
|
|
0.20
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
30.24
|
|
|
|
27.04
|
|
|
$
|
0.16
|
|
2nd Quarter
|
|
|
33.43
|
|
|
|
28.10
|
|
|
|
0.16
|
|
3rd Quarter
|
|
|
33.49
|
|
|
|
25.25
|
|
|
|
0.16
|
|
4th Quarter
|
|
|
30.68
|
|
|
|
25.25
|
|
|
|
0.16
|
|
The approximate number of holders of record of the
Companys Common Stock as of February 9, 2009 was
9,288.
See Part III, Item 12 of this report for the
information concerning the Companys Equity
Compensation Plans.
Dividends
Declaration of dividends is at the discretion of the
Companys Board of Directors and will depend upon the
earnings and financial condition of the Company and such other
factors as the Board of Directors deems appropriate.
Issuer
Repurchases of Common Stock
In February 2008, the Companys Board of Directors
authorized the repurchase of up to $500 million in common
stock after three previous authorizations dated May 2005, July
2006 and August 2007 with a cumulative authorized repurchase
amount of $1.2 billion were fully utilized. Purchases of
the Companys common stock may be made from time to time,
subject to market conditions. These shares may be repurchased in
the open market or through privately negotiated transactions.
The Company has no obligation to repurchase shares under the
authorization, and the timing, actual number and value of the
shares that are repurchased will depend on a number of factors,
including the price of the Companys stock. The Company may
suspend or discontinue the program at any time and there is no
expiration date.
There were no repurchases made by the Company in the fourth
quarter. At December 28, 2008, $252,364,317 remained
available under the above authorization.
19
|
|
Item 6.
|
Selected
Financial Data
|
(Thousands of dollars and shares except per share data and
ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
3,151,481
|
|
|
|
3,087,627
|
|
|
|
2,997,510
|
|
Net earnings
|
|
$
|
306,766
|
|
|
|
333,003
|
|
|
|
230,055
|
|
|
|
212,075
|
|
|
|
195,977
|
|
Per Common Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.18
|
|
|
|
2.13
|
|
|
|
1.38
|
|
|
|
1.19
|
|
|
|
1.11
|
|
Diluted
|
|
$
|
2.00
|
|
|
|
1.97
|
|
|
|
1.29
|
|
|
|
1.09
|
|
|
|
0.96
|
|
Cash dividends declared
|
|
$
|
0.80
|
|
|
|
0.64
|
|
|
|
0.48
|
|
|
|
0.36
|
|
|
|
0.24
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,168,797
|
|
|
|
3,237,063
|
|
|
|
3,096,905
|
|
|
|
3,301,143
|
|
|
|
3,240,660
|
|
Total long-term debt
|
|
$
|
709,723
|
|
|
|
845,071
|
|
|
|
494,917
|
|
|
|
528,389
|
|
|
|
626,822
|
|
Ratio of Earnings to Fixed Charges(1)
|
|
|
8.15
|
|
|
|
10.86
|
|
|
|
9.74
|
|
|
|
8.33
|
|
|
|
6.93
|
|
Weighted Average Number of Common Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
140,877
|
|
|
|
156,054
|
|
|
|
167,100
|
|
|
|
178,303
|
|
|
|
176,540
|
|
Diluted
|
|
|
155,230
|
|
|
|
171,205
|
|
|
|
181,043
|
|
|
|
197,436
|
|
|
|
196,048
|
|
|
|
|
(1) |
|
For purposes of calculating the ratio of earnings to fixed
charges, fixed charges include interest expense and one-third of
rentals; earnings available for fixed charges represent earnings
before fixed charges and income taxes. |
See Forward-Looking Information and Risk Factors That May
Affect Future Results contained in Item 1A of this
report for a discussion of risks and uncertainties that may
affect future results. Also see Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in Item 7 of this report for a
discussion of factors affecting the comparability of information
contained in this Item 6.
20
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with the
audited consolidated financial statements of the Company
included in Part II Item 8 of this document.
This Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements concerning the Companys expectations and
beliefs. See Item 1A Forward-Looking Information and
Risk Factors That May Affect Future Results for a
discussion of other uncertainties, risks and assumptions
associated with these statements.
Unless otherwise specifically indicated, all dollar or share
amounts herein are expressed in thousands of dollars or shares,
except for per share amounts.
Executive
Summary
The Company earns revenue and generates cash through the sale of
a variety of toy and game products, as well as through the
out-licensing of rights for use of its properties in connection
with non-competing products, including digital games, offered by
third parties. The Company sells its products both within the
United States and in a number of international markets. The
Companys business is highly seasonal with a significant
amount of revenues occurring in the second half of the year. In
2008, 2007 and 2006, the second half of the year accounted for
63%, 66% and 68% of the Companys net revenues,
respectively. While many of the Companys products are
based on brands the Company owns or controls, the Company also
offers products which are licensed from outside inventors. In
addition, the Company licenses rights to produce products based
on movie, television, music and other entertainment properties,
such as MARVEL and STAR WARS properties.
The Companys business is primarily separated into two
business segments, U.S. and Canada and International. The
U.S. and Canada segment develops, markets and sells both
toy and game products in the U.S. and Canada. The
International segment consists of the Companys European,
Asia Pacific and Latin and South American marketing operations,
including Mexico. In addition to these two primary segments, the
Companys world-wide manufacturing and product sourcing
operations are managed through its Global Operations segment.
The Companys Other segment is responsible for the
worldwide out-licensing of the Companys intellectual
properties and works closely with the U.S. and Canada and
International segments on the development and out-licensing of
the Companys brands. Prior to 2008, the Companys
Mexican operations were included with the U.S. and Canada
in the North American segment. At the beginning of 2008 the
Company reorganized the management and reporting structure of
its operating segments and moved the Mexican operations into the
International segment and the North American segment was renamed
the U.S. and Canada segment. The management reorganization
was the result of a realignment of the Companys commercial
markets and reflects its objective to leverage its Mexican
operations in connection with its growth strategy in Latin and
South America.
The Company seeks to make its brands relevant in all areas
important to its consumers. Brand awareness is amplified through
immersive traditional play, digital applications, publishing and
lifestyle licensing experiences presented for the
consumers enjoyment. The Companys focus remains on
growing core owned and controlled brands, developing new and
innovative products which respond to market insights and
optimizing efficiencies within the Company to reduce costs,
increase operating profits and strengthen its balance sheet. The
Companys core brands represent Company-owned or
Company-controlled brands, such as TRANSFORMERS, MY LITTLE PONY,
LITTLEST PET SHOP, MONOPOLY, MAGIC: THE GATHERING, PLAYSKOOL,
G.I. JOE, NERF and TONKA, which have been successful over the
long term. The Company has a large portfolio of owned and
controlled brands, which can be introduced in new formats and
platforms over time. These brands may also be further extended
by pairing a licensed concept with a core brand. By focusing on
core brands, the Company is working to build a more consistent
revenue stream and basis for future growth. During 2008 the
Company had strong sales of core brand products, namely LITTLEST
PET SHOP, TRANSFORMERS, PLAYSKOOL, MONOPOLY, NERF, MY LITTLE
PONY, FURREAL FRIENDS and PLAY-DOH. This strategy of
reimagining, reinventing and reigniting its brands has proved
instrumental to achieving its overall growth objectives.
21
The Company also seeks to drive product-related revenues by
increasing the visibility of its core brands through
entertainment. As an example of this, in July of 2007, the
TRANSFORMERS motion picture was released and the Company
developed and marketed products based on the motion picture. As
a result of pairing this core brand with this type of
entertainment, both the movie and the product line benefited.
The Company expects to continue this strategy and anticipates
the theatrical releases of both TRANSFORMERS: REVENGE OF THE
FALLEN and G.I. JOE: RISE OF COBRA motion pictures during 2009.
In addition, the Company has entered into a six-year strategic
relationship with Universal Pictures to produce at least four
motion pictures based on certain of Hasbros core brands.
The first movie is expected to be released in 2010 or 2011,
followed by anticipated releases of at least one movie per year
thereafter.
While the Company believes it has achieved a more sustainable
revenue base by developing and maintaining its core brands and
avoiding reliance on licensed entertainment properties, it
continues to opportunistically enter into or leverage existing
strategic licenses which complement its brands and key
strengths. In 2008 and 2007, the Company had significant sales
of products related to the Companys license with Marvel
Characters B.V. (Marvel), primarily due to the
theatrical releases of IRON MAN in May 2008, THE INCREDIBLE HULK
in June 2008 and SPIDERMAN-3 in May 2007. In addition, the
Company had significant sales in 2008 of products related to the
movie release of STAR WARS: CLONE WARS in August 2008 as well as
sales from the movie release of INDIANA JONES AND THE KINGDOM OF
THE CRYSTAL SKULL in May 2008. During 2009 the Company expects
to continue to have a high level of revenues from
entertainment-based licensed properties based on the expected
major motion picture release of X-MEN ORIGINS: WOLVERINE as well
as products related to television programming based on
SPIDER-MAN and STAR WARS.
While gross profits of theatrical entertainment-based products
are generally higher than many of the Companys other
products, sales from these products including our owned or
controlled brands based on a movie release also incur royalty
expense. Such royalties reduce the impact of these higher gross
margins. In certain instances, such as with Lucasfilms
STAR WARS, the Company may also incur amortization expense on
property right-based assets acquired from the licensor of such
properties, further impacting profits earned on these products.
The Companys long-term strategy also focuses on extending
its brands further into the digital world. As part of this
strategy, the Company entered into a multi-year strategic
agreement with Electronic Arts Inc. (EA). The
agreement gives EA the exclusive worldwide rights, subject to
existing limitations on the Companys rights and certain
other exclusions, to create digital games for all platforms,
such as mobile phones, gaming consoles and personal computers,
based on a broad spectrum of the Companys intellectual
properties, including MONOPOLY, SCRABBLE, YAHTZEE, NERF, TONKA,
G.I. JOE and LITTLEST PET SHOP. The first major game releases
under this agreement were released in 2008, with a full line
expected in 2009.
While the Company remains committed to investing in the growth
of its business, it also continues to be focused on reducing
fixed costs through efficiencies and on profit improvement. Over
the last 6 years the Company has improved its full year
operating margin from 7.8% in 2002 to 12.3% in 2008. The Company
reviews it operations on an ongoing basis and seeks to reduce
its cost structure and promote efficiency. The Company is also
investing to grow its business in emerging markets. In 2008, the
Company expanded its operations in China, Brazil, Russia, Korea
and the Czech Republic. In addition, the Company is seeking to
grow its business in entertainment, digital gaming, and will
continue to evaluate strategic alliances and acquisitions which
may complement its current product offerings or allow it entry
into an area which is adjacent to and complementary to the toy
and game business. For example, in January of 2008, the Company
acquired Cranium, Inc., a developer and marketer of CRANIUM
branded games and related products. In the second quarter of
2008, the Company acquired the rights to TRIVIAL PURSUIT, a
brand which the Company had previously licensed on a long-term
basis. Ownership of the rights will allow the Company to further
leverage the brand in different media.
In recent years, the Company has been seeking to return excess
cash to its shareholders through share repurchases and
dividends. As part of this initiative, over the last four years,
the Companys Board of Directors
22
(the Board) has adopted four share repurchase
authorizations with a cumulative authorized repurchase amount of
$1,700,000. After fully exhausting the prior three
authorizations, the fourth authorization was approved on
February 7, 2008 for $500,000. For the years ended 2008,
2007 and 2006, the Company spent $357,589, $587,004 and
$456,744, respectively, to repurchase 11,736, 20,795 and
22,767 shares, respectively, in the open market. Also in
2007, the Company paid $200,000 in cash to repurchase
exercisable warrants for 15,750 shares of the
Companys common stock. The Company intends to, at its
discretion, opportunistically repurchase shares in the future
subject to market conditions. At December 28, 2008, the
Company had $252,364 remaining under the February 2008
authorization.
After a very strong first nine months of 2008, the Company was
negatively impacted during the fourth quarter of 2008 by both
the strengthening of the U.S. dollar relative to foreign
currencies as well as the broad based economic downturn that was
experienced in most of the markets in which it operates. The
Company worked with its retail customers to put certain
promotional programs in place with the goal of both driving
sales as well as managing inventory at retail given the
weakening demand. Despite the impact of the economic conditions,
the Company grew revenue in both the fourth quarter and for the
full year absent the impact of foreign exchange rate changes in
2008.
Recent issues in the credit markets have not materially impacted
the Companys liquidity. As of December 28, 2008 the
Company had $630,390 in cash and had available capacity, if
needed, under its revolving credit agreement. The Company
believes that the funds available to it, including cash expected
to be generated from operations and funds available through its
available lines of credit and accounts receivable securitization
program are adequate to meet its working capital needs for 2009.
Summary
The components of the results of operations, stated as a percent
of net revenues, are illustrated below for each of the three
fiscal years ended December 28, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
42.1
|
|
|
|
41.1
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57.9
|
|
|
|
58.9
|
|
|
|
58.6
|
|
Amortization
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
2.5
|
|
Royalties
|
|
|
7.8
|
|
|
|
8.2
|
|
|
|
5.4
|
|
Research and product development
|
|
|
4.8
|
|
|
|
4.4
|
|
|
|
5.4
|
|
Advertising
|
|
|
11.3
|
|
|
|
11.3
|
|
|
|
11.7
|
|
Selling, distribution and administration
|
|
|
19.8
|
|
|
|
19.7
|
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
12.3
|
|
|
|
13.5
|
|
|
|
11.9
|
|
Interest expense
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
0.9
|
|
Interest income
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
Other (income) expense, net
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
11.0
|
|
|
|
12.0
|
|
|
|
10.8
|
|
Income taxes
|
|
|
3.4
|
|
|
|
3.3
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
7.6
|
%
|
|
|
8.7
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
The fiscal years ended December 28, 2008 and
December 30, 2007 were fifty-two week periods while the
fiscal year ended December 31, 2006 was a fifty-three week
period.
23
Net earnings for the fiscal year ended December 28, 2008
were $306,766, or $2.00 per diluted share. This compares to net
earnings for fiscal 2007 and 2006 of $333,003 and $230,055, or
$1.97 and $1.29 per diluted share, respectively.
Net earnings includes non-operating expense related to the
change in fair value of certain warrants required to be
classified as a liability of $44,370 in 2007 and $31,770 in
2006. These warrants were repurchased during May 2007. Net
earnings for 2007 also includes a favorable tax adjustment of
$29,619, or $0.17 per diluted share, related to the recognition
of certain previously unrecognized tax benefits.
In January 2008 the Company acquired Cranium, Inc.
(Cranium). The results of operations for 2008
include the operations of Cranium from the acquisition closing
date of January 25, 2008.
Consolidated net revenues for the year ended December 28,
2008 were $4,021,520 compared to $3,837,557 in 2007 and
$3,151,481 in 2006. Most of the Companys net revenues and
operating profits were derived from its two principal segments:
the U.S. and Canada segment and the International segment,
which are discussed in detail below. Consolidated net revenues
in 2008 were negatively impacted by foreign currency translation
of approximately $10,300 as a result of the stronger
U.S. dollar in 2008 as compared to 2007 while consolidated
net revenues in 2007 were positively impacted by foreign
currency translation in the amount of $94,500 as a result of the
overall weaker U.S. dollar in that year.
The following table presents net revenues and operating profit
data for the Companys two principal segments for 2008,
2007 and 2006. Results for 2007 and 2006 have been reclassified
to conform to the Companys 2008 operating segment
structure.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
2008
|
|
|
Change
|
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
2,406,745
|
|
|
|
5
|
%
|
|
$
|
2,293,742
|
|
|
|
15
|
%
|
|
$
|
1,997,141
|
|
International
|
|
$
|
1,499,334
|
|
|
|
4
|
%
|
|
$
|
1,444,863
|
|
|
|
32
|
%
|
|
$
|
1,092,468
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
283,152
|
|
|
|
(2
|
)%
|
|
$
|
287,800
|
|
|
|
13
|
%
|
|
$
|
254,502
|
|
International
|
|
$
|
165,186
|
|
|
|
(13
|
)%
|
|
$
|
189,783
|
|
|
|
69
|
%
|
|
$
|
112,350
|
|
U.S.
and Canada
U.S. and Canada segment net revenues for the year ended
December 28, 2008 increased 5% to $2,406,745 from
$2,293,742 in 2007. The impact of foreign currency translation
on U.S. and Canada segment net revenues in 2008 was
unfavorable and decreased net revenues by approximately $3,100.
The increase in net revenues in 2008 was primarily due to higher
revenues in the boys toys category, driven by increased
sales of STAR WARS products and sales of INDIANA JONES products.
Although revenues from TRANSFORMERS and MARVEL products
decreased in 2008 compared to 2007, as a result of the
significant sales recognized in the prior year due to the
theatrical releases of TRANSFORMERS in July 2007 and SPIDER-MAN
3 in May 2007, these lines remained significant contributors to
U.S. and Canada segment net revenues in 2008. The increase
in segment net revenues for 2008 was also due to increased
revenues in the games and puzzles category as a result of
increased sales of DUEL MASTERS and TRIVIAL PURSUIT games and
the impact of the acquisition of Cranium, partially offset by
decreased revenues from plug and play games. Revenues from the
tweens category also increased as a result of higher sales of
NERF products, partially offset by decreased sales of POWER TOUR
GUITAR, which is no longer in the Companys product line,
as well as lower sales of I-DOG. Revenues from the preschool
category increased slightly as higher sales of PLAYSKOOL
products were partially offset by decreased sales of TONKA
products. Revenues from the girls toys category increased
slightly primarily as a result of of the reintroduction of
EASY-BAKE oven, partly offset by decreased revenues from MY
LITTLE PONY, FURREAL FRIENDS, and LITTLEST PET SHOP. Although
revenues from LITTLEST PET SHOP decreased slightly in 2008,
sales of these products remained a significant contributor to
U.S. and Canada segment net revenues in 2008. Revenues in
2008 were also negatively impacted by decreased sales of TOOTH
TUNES.
24
U.S. and Canada operating profit decreased to $283,152 in
2008 from $287,800 in 2007. Operating profit in 2008 was
negatively impacted by approximately $1,100 due to the
translation of foreign currencies to the U.S. dollar.
U.S. and Canada segment gross profits increased in dollars
but decreased as a percentage of net revenues in 2008 primarily
as a result of the increased promotional programs implemented by
the Company in the fourth quarter of 2008, including the
provision of sales allowances and markdowns, to address the weak
retail environment. The increase in gross profit in dollars was
more than offset by increased product development and sales and
marketing expenses related to investments the Company is making
in both core brands and its digital initiative related to its
Wizards of the Coast subsidiary; increased amortization as a
result of the acquisition of Cranium and the purchase of
intellectual property rights related to TRIVIAL PURSUIT;
increased royalty expense; and increased shipping and
distribution costs, reflecting higher sales volume and higher
transportation costs.
U.S. and Canada segment net revenues for the year ended
December 30, 2007 increased 15% to $2,293,742 from
$1,997,141 in 2006. The impact of foreign currency translation
on U.S. and Canada segment net revenues in 2007 was
favorable, due to the strength of the Canadian dollar, and
increased net revenues by approximately $4,500. The increase was
due primarily to increased revenues in the boys toys
category driven by sales of MARVEL and TRANSFORMERS products due
to the theatrical releases of SPIDER-MAN 3 in May 2007 and
TRANSFORMERS in July 2007. Although STAR WARS product sales
declined in 2007 from 2006, sales of these products were a
significant contributor to boys toys revenues in 2007.
Revenues in the girls toys category increased as a result
of higher sales of LITTLEST PET SHOP and FURREAL FRIENDS
products as well as higher revenues from the BABY ALIVE line
which was reintroduced in the second quarter of 2006. To a
lesser extent, revenues in the girls toys category were
positively impacted by increased shipments of MY LITTLE PONY
products. Girls toys revenues were negatively impacted by
decreased sales of EASY-BAKE oven products due to the recall of
the product in July of 2007. Revenues from the preschool
category decreased slightly in 2007. Revenue from games and
puzzles decreased slightly due to lower revenues from trading
card and plug and play games partially offset by increased sales
of traditional board games. Revenues from the tweens category
decreased as a result of lower sales of electronic products such
as VIDEONOW, ZOOMBOX and I-DOG partially offset by increased
sales of NERF products. Revenues in 2007 were also positively
impacted by increased sales of TOOTH TUNES.
U.S. and Canada operating profit increased to $287,800 in
2007 from $254,502 in 2006. Operating profit in 2007 was
positively impacted by approximately $1,300 due to the
translation of foreign currencies to the U.S. dollar. The
increase in operating profit was primarily the result of higher
gross profits resulting from the higher revenues discussed
above. Although U.S. and Canada gross profit increased as a
result of higher revenues, this increase in gross profit was
negatively impacted by approximately $10,400 of charges recorded
in the second quarter of 2007 related to the July 2007 EASY-BAKE
oven recall. The increase in gross profit was also partially
offset by higher royalty expense as the result of the increased
sales of MARVEL and TRANSFORMERS movie-related products.
Operating profit was also negatively impacted by higher
advertising expense as well as higher selling and distribution
costs related to the increased sales volume. In addition,
U.S. and Canada operating profit included increased
investment spending in an online initiative of the
Companys Wizards of the Coast operation.
International
International segment net revenues for the year ended
December 28, 2008 increased by 4% to $1,499,334 from
$1,444,863 in 2007. In 2008 net revenues were negatively
impacted by currency translation of approximately $7,400 as a
result of a stronger U.S. dollar. The increase in net
revenues was primarily the result of increased product sales in
the girls toys and preschool categories primarily relating
to LITTLEST PET SHOP in the girls toys category and
PLAYSKOOL, which includes IN THE NIGHT GARDEN products, in the
preschool category. Net revenues in the games and puzzles
category decreased primarily as a result of decreased revenues
from MAGIC: THE GATHERING product, TRIVIAL PURSUIT products and
MONOPOLY products. Net revenues in the boys toys category
decreased primarily as a result of decreased sales of MARVEL and
TRANSFORMERS products, however, both product lines continued to
be significant contributors to International segment net
revenues in 2008. Decreased net revenues in the boys toys
category were
25
partially offset by increased sales of STAR WARS and sales of
INDIANA JONES products. Net revenues in the tweens category
decreased primarily as a result of decreased revenues from POWER
TOUR GUITAR, which is no longer in the Companys product
line, and I-DOG, partially offset by increased sales of NERF
products.
International segment operating profit decreased 13% to $165,186
in 2008 from $189,783 in 2007. Operating profit for the
International segment in 2008 was negatively impacted by
approximately $4,400 due to the translation of foreign
currencies to the U.S. dollar. The decrease in
International segment operating profit also reflects promotional
programs implemented by the Company in the fourth quarter of
2008 in response to weakened retail conditions; increased
advertising expense; and increased investments in emerging
markets; partially offset by lower royalty expense as a result
of lower sales of entertainment-based products. In addition,
International segment operating profit in 2008 was positively
impacted by the recognition of a pension surplus in the United
Kingdom.
International segment net revenues for the year ended
December 30, 2007 increased by 32% to $1,444,863 from
$1,092,468 in 2006. In 2007, net revenues were positively
impacted by currency translation of approximately $88,800 as a
result of a weaker U.S. dollar. The increase in net
revenues was primarily the result of increased net revenues in
the boys toys category. As in the U.S. and Canada
segment, this increase was driven by higher sales of
TRANSFORMERS products resulting from the theatrical release of
the TRANSFORMERS movie in most countries in July of 2007 and
MARVEL products resulting from the theatrical release of
SPIDER-MAN 3 in May of 2007. Increased revenues in the
girls toys category were principally the result of
increased sales of LITTLEST PET SHOP products, and to a lesser
extent, MY LITTLE PONY and BABY ALIVE products. Revenues in the
preschool category were higher in 2007 based on increased sales
of PLAYSKOOL products, partially due to strong revenues of IN
THE NIGHT GARDEN in the United Kingdom. Revenues in the games
and puzzles category increased primarily due to increased sales
of MONOPOLY. Revenues from the tweens category increased
primarily as a result of sales of the POWER TOUR GUITAR which
was introduced in 2007.
International segment operating profit increased 69% to $189,783
in 2007 from $112,350 in 2006. Operating profit for the segment
in 2007 was positively impacted by approximately $10,600 due to
the translation of foreign currencies to the U.S. dollar.
The remaining increase in operating profit was due to the higher
revenues discussed above. The increased gross profit as a result
of the higher revenues was partially offset by higher royalty
expense due to higher sales of MARVEL and TRANSFORMERS products
as well as higher advertising and selling, distribution and
administration expenses.
Gross
Profit
The Companys gross profit margin decreased to 57.9% for
the year ended December 28, 2008 from 58.9% in 2007. The
decrease is primarily due to incremental promotional programs,
including sales allowances and markdowns, implemented in the
fourth quarter of 2008 as a result of the weak retail
environment, as well as changes in product mix. Decreases in
gross profit as the result of input cost inflation were
partially offset by cost savings initiatives and an increase in
pricing of certain of the Companys products. The Company
currently does not expect to have similar incremental
promotional programs in 2009.
The Companys gross profit margin increased to 58.9% for
the year ended December 30, 2007 from 58.6% in 2006. This
increase was due to changes in product mix, primarily the
positive impact of higher sales of licensed products. Although
licensed products generally carry a higher gross margin, the
increased gross margin was largely offset by higher royalty
expense associated with these products. Gross profit in 2007 was
also negatively impacted by approximately $10,400 in charges
related to the recall of the Companys EASY-BAKE oven
product and by a charge of approximately $10,000 related to a
restructuring and related reduction in work force at the
Companys manufacturing facility in East Longmeadow,
Massachusetts. This charge consisted primarily of severance
costs.
26
Expenses
The Companys operating expenses, stated as percentages of
net revenues, are illustrated below for the three fiscal years
ended December 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Amortization
|
|
|
1.9
|
%
|
|
|
1.8
|
%
|
|
|
2.5
|
%
|
Royalties
|
|
|
7.8
|
|
|
|
8.2
|
|
|
|
5.4
|
|
Research and product development
|
|
|
4.8
|
|
|
|
4.4
|
|
|
|
5.4
|
|
Advertising
|
|
|
11.3
|
|
|
|
11.3
|
|
|
|
11.7
|
|
Selling, distribution and administration
|
|
|
19.8
|
|
|
|
19.7
|
|
|
|
21.7
|
|
Amortization expense increased to $78,265 or 1.9% of net
revenues in 2008 compared to $67,716 or 1.8% of net revenues in
2007. The increase is primarily the result of the acquisition of
Cranium, Inc. in January 2008 and the purchase of the
intellectual property rights related to TRIVIAL PURSUIT in the
second quarter of 2008. Property rights of $68,500 and $80,800
were recorded as a result of the Cranium, Inc. acquisition and
the purchase of TRIVIAL PURSUIT, respectively, and are each
being amortized over fifteen years. Amortization expense
decreased to $67,716 in 2007 from $78,934 in 2006. A portion of
amortization expense relates to licensing rights and is based on
expected sales of products related to those licensing rights.
The decrease in amortization expense in 2007 primarily related
to decreased amortization of the product rights related to STAR
WARS.
Royalty expense decreased to $312,986 or 7.8% of net revenues in
2008 compared to $316,807 or 8.2% of net revenues in 2007. The
decrease in royalty expense is primarily the result of the
impact of foreign exchange. Absent this foreign exchange impact,
royalty expense decreased slightly as the result of slightly
lower sales of entertainment-based products. Royalty expense
increased to $316,807 or 8.2% of net revenues in 2007 compared
to $169,731 or 5.4% of net revenues in 2006. This increase was
primarily due to increased sales of entertainment-based
products, primarily MARVEL and TRANSFORMERS movie-related
products due to the theatrical releases of SPIDER-MAN 3 and
TRANSFORMERS in 2007.
Research and product development expense increased in 2008 to
$191,424 or 4.8% of net revenues from $167,194 or 4.4% of net
revenues in 2007. The increase in 2008 reflects higher
investments in the Companys core brands, increased
expenditures relating to the Companys digital initiatives,
as well as additional expenses as a result of the Companys
Cranium acquisition. Research and product development expense
decreased in 2007 to $167,194 or 4.4% of net revenues from
$171,358 or 5.4% of net revenues in 2006. This decrease
reflected higher investments in the prior year, primarily as a
result of increased expenditures related to the introduction of
the MARVEL product lines in late 2006 and early 2007.
Advertising expense increased in dollars to $454,612 in 2008
from $434,742 in 2007, but remained flat as a percentage of net
revenues at 11.3%. The increase in dollars is primarily the
result of higher spending to increase awareness of the
Companys brands. Advertising expense increased in dollars
to $434,742 in 2007 from $368,996 in 2006, but decreased as a
percentage of revenues to 11.3% from 11.7% in 2006. The decrease
as a percentage of revenues primarily related to the mix of
sales in 2007, which included increased sales of
entertainment-based products, which require lower amounts of
advertising and promotion. Revenues from properties related to
major motion picture releases were higher in 2008 and 2007 as
compared to 2006.
Selling, distribution and administration expenses increased to
$797,209 or 19.8% of net revenues in 2008, compared to $755,127
or 19.7% of net revenues in 2007. The increase reflects
increased sales and marketing expenses to support the growth in
the business; increased investment in the expansion into
emerging markets, including Brazil, China, Russia, the Czech
Republic and Korea; increased investment in the Companys
digital and entertainment strategies; and increased shipping and
distribution costs associated with both increased sales volume
and higher transportation costs. Selling, distribution and
administration expenses increased in dollars to $755,127 in 2007
from $682,214 in 2006 but decreased as a percentage of revenues
to 19.7% from 21.7% in 2006. The increase in dollars reflected
higher variable selling and distribution costs resulting from
higher revenues in 2007, as well as higher incentive
compensation provisions, the impact of foreign currency, and
27
general inflationary increases. The decrease as a percentage of
revenues in 2008 and 2007 compared to 2006 reflects the fixed
nature of certain of these expenses, coupled with the higher
revenues in each of those years.
Interest
Expense
Interest expense increased to $47,143 in 2008 from $34,618 in
2007. The increase in interest expense was primarily the result
of higher average borrowings in 2008 primarily as a result of
the issuance of $350,000 of notes in September 2007, partially
offset by the repayment of $135,092 of notes in July 2008. The
increase in the average borrowing rate for 2008 from the
issuance of long-term debt in 2007 was more than offset by
decreases in the average borrowing rate on short-term debt in
2008 as well as the repayment of 6.15% notes in July 2008.
Interest expense increased to $34,618 in 2007 from $27,521 in
2006. The increase in interest expense was due to higher average
borrowings in 2007 primarily resulting from the issuance of
$350,000 of notes in September 2007. The majority of the
proceeds from the issuance of these notes were used to repay
short-term debt resulting from increased repurchases of common
stock as well as the repurchase of the Lucas warrants for
$200,000.
Interest
Income
Interest income was $17,654 in 2008 compared to $29,973 in 2007
and $27,609 in 2006. The decrease in interest income in 2008
from 2007 is primarily the result of lower returns on invested
cash. Interest income in 2006 includes $5,200 related to a
long-term deposit that was refunded during 2006. The increase in
interest income in 2007 from 2006 primarily reflected higher
average rates of return in 2007 compared to 2006, and, to a
lesser extent, higher average invested balances in 2007. During
a portion of 2007 and 2006, the Company invested excess cash in
auction rate securities, which generated a higher rate of return
and contributed to the higher level of interest income in 2007
and 2006.
Other
(Income) Expense, Net
Other (income) expense, net of $23,752 in 2008 compares to
$52,323 in 2007 and $34,977 in 2006. In 2007 and 2006 the major
component of other (income) expense was non-cash expense related
to the change in fair value of the Lucas warrants, which were
required to be classified as a liability. These warrants were
required to be adjusted to their fair value each quarter through
earnings. In May 2007, the Company exercised the call option on
these warrants and repurchased them for $200,000 in cash, which
approximated fair value at that date. As these warrants were
repurchased in 2007, there was no fair value adjustment in 2008.
For 2007 and 2006, expense related to the change in fair value
of these warrants was $44,370 and $31,770, respectively. Absent
the impact of the fair value adjustments, increased expense in
2008 primarily relates to increased foreign exchange losses
arising from the impact of the large downward movement in
foreign exchange rates, primarily in the fourth quarter of 2008,
on
non-U.S. denominated
intercompany balances.
Income
Taxes
Income tax expense totaled 30.4% of pretax earnings in 2008
compared with 28.0% in 2007 and 32.6% in 2006. Income tax
expense for 2008 is net of a tax benefit of approximately
$10,200 related to discrete tax events, primarily comprised of a
benefit from the repatriation of certain foreign earnings, as
well as the settlement of various tax examinations in multiple
jurisdictions. Income tax expense for 2007 was net of a benefit
of $29,999 related to discrete tax events, primarily relating to
the recognition of previously unrecognized tax benefits. Income
tax expense for 2006 includes a charge of approximately $7,800
related to discrete tax events, primarily relating to the
settlement of various tax examinations in multiple
jurisdictions. Absent these items, potential interest and
penalties recorded in 2008 and 2007 related to uncertain tax
positions, and the effect of the fair value adjustment of the
Lucas warrants, which had no tax effect in 2007 and 2006, the
2008 effective tax rate would have been 32.8% compared to 30.5%
in 2007 and 27.6% in 2006. The increase in the adjusted rate to
32.8% in 2008 compared to 30.5% in 2007 primarily reflects the
change in the mix of where the Company earned its profits. The
increase in the adjusted rate to 30.5% in 2007 from
28
27.6% in 2006 primarily reflects the decision to provide for the
repatriation of a portion of 2007 international earnings to the
U.S.
Liquidity
and Capital Resources
The Company has historically generated a significant amount of
cash from operations. In 2008, the Company funded its operations
and liquidity needs primarily through cash flows from
operations, and, when needed, using borrowings under its
available lines of credit and proceeds from its accounts
receivable securitization program. During 2009, the Company
expects to continue to fund its working capital needs primarily
through cash flows from operations and, when needed, using
borrowings under its available lines of credit and proceeds from
its accounts receivable securitization program. The Company
believes that the funds available to it, including cash expected
to be generated from operations and funds available through its
available lines of credit and accounts receivable securitization
program are adequate to meet its working capital needs for 2009,
however, unexpected events or circumstances such as material
operating losses or increased capital or other expenditures may
reduce or eliminate the availability of external financial
resources. In addition, significant disruptions to credit
markets may also reduce or eliminate the availability of
external financial resources. Although we believe the risk of
nonperformance by the counterparties to our financial facilities
is not significant, in times of severe economic downturn in the
credit markets it is possible that one or more sources of
external financing may be unable or unwilling to provide funding
to us.
At December 28, 2008, cash and cash equivalents, net of
short-term borrowings were $622,804 compared to $764,257 and
$704,818 at December 30, 2007 and December 31, 2006,
respectively. Hasbro generated $593,185, $601,794, and $320,647
of cash from its operating activities in 2008, 2007 and 2006,
respectively. In 2007 and 2006 operating cash flows were
impacted by royalty advances paid of $70,000 and $105,000
related to MARVEL in those respective years. In addition, 2007
and 2006 net earnings included non-cash expense of $44,370
and $31,770, respectively, related to the fair value adjustment
related to the Lucas warrants that were repurchased in May of
2007. The remaining decrease in 2008 operating cash flows was
due to decreased net earnings in 2008 compared to 2007. The
higher cash flows from operations in 2007 compared to 2006 were
primarily the result of increased earnings as well as the mix of
products in 2007 net revenues.
Accounts receivable decreased to $611,766 at December 28,
2008 from $654,789 at December 30, 2007. The accounts
receivable balance at December 28, 2008 includes a decrease
of approximately $61,100 as a result of the stronger
U.S. dollar in 2008. Absent the impact of foreign exchange,
accounts receivable increased slightly. Accounts receivable
increased to $654,789 at December 30, 2007 from $556,287 at
December 31, 2006. The increase in accounts receivable was
primarily the result of higher sales volume in 2007. The
December 30, 2007 accounts receivable balance includes an
increase of approximately $31,100 related to the currency impact
of the weaker U.S. dollar. Fourth quarter days sales
outstanding remained consistent at 45 days in 2008, 2007
and 2006. The Company has a revolving accounts receivable
securitization facility whereby the Company is able to sell
undivided fractional ownership interests in qualifying accounts
receivable on an ongoing basis. At December 28, 2008 and
December 30, 2007, there was $250,000 sold at each
period-end under this program.
Inventories increased to $300,463 at December 28, 2008 from
$259,081 at December 30, 2007. The increase relates to
lower revenues in the fourth quarter of 2008 as a result of the
weak retail environment and, to a lesser extent, the
Companys expansion into emerging markets. The
December 28, 2008 inventory balance includes a decrease of
approximately $20,900 as a result of the currency impact of the
stronger U.S. dollar in 2008. The increase in inventory to
$259,081 at December 30, 2007 from $203,337 at
December 31, 2006 reflected the growth of the
Companys business in 2007. In addition, inventories
increased approximately $9,400 due to the weaker
U.S. dollar in 2007.
Prepaid expenses and other current assets decreased to $171,387
at December 28, 2008 from $199,912 at December 30,
2007. This decrease is primarily due to utilization of a portion
of the Marvel and the remainder of the Lucas prepaid royalty
advances. Generally, when the Company enters into a licensing
agreement for entertainment-based properties, an advance royalty
payment is required at the inception of the agreement. This
payment is then recognized in the consolidated statement of
operations as the related sales are made. At
29
December 28, 2008, the Company had prepaid royalties
related to the Marvel license in both current and non-current
assets. Each reporting period, the Company reflects as current
prepaid expense the amount of royalties it expects to reflect in
the statement of operations in the upcoming twelve months. The
decrease in prepaid expenses and other current assets in 2008
was partially offset by an increase in the value of the
Companys foreign currency contracts as a result of the
strengthening of the U.S. dollar. Prepaid expenses and
other current assets decreased to $199,912 at December 30,
2007 from $243,291 at December 31, 2006. This decrease was
primarily due to utilization of Marvel and Lucas royalty
advances, as well as a decrease in deferred tax assets.
Accounts payable and accrued expenses increased to $792,306 at
December 28, 2008 from $742,122 at December 30, 2007.
The increase was primarily the result of increased accrued
royalties as a result of the utilization of the remainder of the
Lucas prepaid royalty advance in the third quarter of 2008 as
well as increased accrued pension primarily due to decreases in
the Plans asset values in 2008. The December 28, 2008
accounts payable and accrued expenses balance includes a
decrease of approximately $64,300 as a result of the currency
impact of the stronger U.S. dollar in 2008 compared to
2007. Accounts payable and accrued expenses decreased to
$742,122 at December 30, 2007 from $895,311 at
December 31, 2006. The decrease was primarily due to the
Companys exercise of its call option related to warrants
required to be classified as a liability and repurchasing these
warrants for $200,000 in cash in the second quarter of 2007. At
December 31, 2006, these warrants had a fair value of
$155,630. The decrease was also a result of the reclassification
to non-current liabilities of the liabilities related to
uncertain tax positions as a result of the adoption of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes at the beginning of 2007. These decreases
were partially offset by increases in accrued royalties
primarily due to the significant sales of TRANSFORMERS
movie-related products, accrued advertising due to higher levels
of advertising expense in the fourth quarter of 2007, as well as
higher accounts payable due to higher levels of inventory and
expenses as of December 30, 2007.
Cash flows from investing activities were a net utilization of
$271,920, $112,465 and $83,604 in 2008, 2007 and 2006,
respectively. The 2008 utilization includes the Companys
purchase of the intellectual property rights related to the
TRIVIAL PURSUIT brand for a total cost of $80,800 as well as
$65,153 in cash, net of cash acquired, used to acquire Cranium,
Inc. in January 2008. In July 2007, with the exception of rights
to DUNGEONS & DRAGONS, the Company reacquired the
remaining digital gaming rights for its owned or controlled
properties held by Infogrames Entertainment SA (Infogrames). The
acquisition price of $19,000 included $18,000 in cash and $1,000
of non-cash consideration in the form of the return of preferred
stock held by the Company in a subsidiary of Infogrames. The
rights repurchased in 2007 were previously held by Infogrames on
an exclusive basis as a result of a licensing agreement entered
into during 2000. The Company made no acquisitions in 2006.
During 2008, the Company expended approximately $117,000 on
additions to its property, plant and equipment compared to
$92,000 during 2007 and $82,000 during 2006. Of these amounts,
56% in 2008, 61% in 2007 and 63% in 2006 were for purchases of
tools, dies and molds related to the Companys products. In
2009, the Company expects capital expenditures to decrease and
be in the range of $90,000 to $100,000. During the three years
ended December 28, 2008, depreciation of plant and
equipment was $87,873, $88,804, and $67,773, respectively.
The Company commits to inventory production, advertising and
marketing expenditures prior to the peak third and fourth
quarter retail selling season. Accounts receivable increase
during the third and fourth quarter as customers increase their
purchases to meet expected consumer demand in the holiday
season. Due to the concentrated timeframe of this selling
period, payments for these accounts receivable are generally not
due until the fourth quarter or early in the first quarter of
the subsequent year. This timing difference between expenditures
and cash collections on accounts receivable made it necessary
for the Company to borrow higher amounts during the latter part
of the year. During 2008, 2007 and 2006, the Company primarily
utilized cash from operations, borrowings under its available
lines of credit and its accounts receivable securitization
program to fund its operations.
The Company is party to an accounts receivable securitization
program whereby the Company sells, on an ongoing basis,
substantially all of its U.S. trade accounts receivable to
a bankruptcy remote special purpose entity, Hasbro Receivables
Funding, LLC (HRF). HRF is consolidated with the
Company for financial
30
reporting purposes. The securitization program then allows HRF
to sell, on a revolving basis, an undivided fractional ownership
interest of up to $250,000 in the eligible receivables it holds
to certain bank conduits. During the period from the first day
of the October fiscal month through the last day of the
following January fiscal month, this limit is increased to
$300,000. The program provides the Company with a source of
working capital. Based on the amount of eligible accounts
receivable as of December 28, 2008, the Company had
availability under this program to sell $251,100, of which
$250,000 was utilized.
The Company has a revolving credit agreement (the
Agreement) which provides it with a $300,000
committed borrowing facility. The Company has the ability to
request increases in the committed facility in additional
increments of at least $50,000, subject to lender agreement, up
to a total committed facility of $500,000. The Agreement
contains certain financial covenants setting forth leverage and
coverage requirements, and certain other limitations typical of
an investment grade facility, including with respect to liens,
mergers and incurrence of indebtedness. The Company was in
compliance with all covenants as of and for the fiscal year
ended December 28, 2008. The Company had no borrowings
outstanding under its committed revolving credit facility at
December 28, 2008. However, letters of credit outstanding
under this facility as of December 28, 2008 were
approximately $1,700. Amounts available and unused under the
committed line at December 28, 2008 were approximately
$298,300. The Company also has other uncommitted lines from
various banks, of which approximately $38,700 was utilized at
December 28, 2008. Of the amount utilized under the
uncommitted lines, approximately $7,500 and $31,200 represent
outstanding borrowings and letters of credit, respectively.
Net cash utilized by financing activities was $457,391 in 2008.
Of this amount, $360,244, which includes transaction costs, was
used to repurchase shares of the Companys common stock. In
February 2008 the Companys Board of Directors authorized
the repurchase of an additional $500,000 in common stock after
three previous authorizations dated May 2005, July 2006 and
August 2007 with a cumulative authorized repurchase amount of
$1,200,000 were fully utilized. During 2008, the Company
repurchased 11,736 shares at an average price per share of
$30.44. At December 28, 2008, $252,364 remained under the
February 2008 authorization. Dividends paid were $107,065 in
2008 compared to $94,097 in 2007, reflecting the increase in the
Companys quarterly dividend rate to $0.20 per share in
2008 from $0.16 per share in 2007, and net of the effect of
decreased shares outstanding in 2008 as a result of the share
repurchases. In addition, $135,092 was used to repay long-term
debt. These uses of cash were partially offset by cash receipts
of $120,895 from the exercise of employee stock options.
Net cash utilized by financing activities was $433,917 in 2007.
Of this amount, $584,349, which includes transaction costs, was
used to repurchase shares of the Companys common stock.
During 2007, the Company repurchased 20,795 shares at an
average price per share of $28.20. In addition, the Company
purchased certain warrants in May 2007 for $200,000 in
accordance with the terms of the call provision of the amended
Lucas warrant agreement. Dividends paid were $94,097 in 2007,
compared to $75,282 in 2006, reflecting the increase in the
Companys quarterly dividend rate to $0.16 per share in
2007 compared to $0.12 per share in 2006. These uses of cash
were partially offset by net proceeds of $346,009 from the
issuance of $350,000 of notes that are due in 2017. The proceeds
from the notes were primarily used to repay short-term
borrowings. The uses of cash were also partially offset by cash
receipts of $82,661 from the exercise of employee stock options.
Net cash utilized by financing activities was $467,279 in 2006.
Of this amount, $456,744, which includes transaction costs, was
used to repurchase shares of the Companys common stock.
During 2006, the Company repurchased 22,767 shares at an
average price per share of $20.03. In addition, $32,743 was used
to repay long-term debt. Dividends paid were $75,282 in 2006.
These uses of cash were partially offset by cash receipts of
$86,257 from the exercise of employee stock options.
At December 28, 2008, the Company has outstanding $249,828
in principal amount of senior convertible debentures due 2021.
The senior convertible debentures bear interest at 2.75%, which
could be subject to an upward adjustment in the rate, not to
exceed 11%, should the price of the Companys common stock
trade at or below $9.72 per share for 20 of the 30 trading days
preceding the fifth day prior to an interest payment date. This
contingent interest feature represents a derivative instrument
that is recorded on the balance sheet at
31
its fair value, with changes in fair value recognized in the
statement of operations. If the closing price of the
Companys common stock exceeds $23.76 for at least 20
trading days, within the 30 consecutive trading day period
ending on the last trading day of the calendar quarter, or upon
other specified events, the debentures will be convertible at an
initial conversion price of $21.60 in the next calendar quarter.
At December 31, 2007 and each of the calendar quarters in
2008 this conversion feature was met and the debentures were
convertible throughout 2008. There were no debentures converted
during 2008. At December 31, 2008, this conversion feature
was met again and the bonds are convertible through
March 31, 2009 at which time the requirements of the
conversion feature will be reevaluated. In addition, if the
closing price of the Companys common stock exceeds $27.00
for at least 20 trading days in any 30 day period, the
Company has the right to call the debentures by giving notice to
the holders of the debentures. During a prescribed notice
period, the holders of the debentures have the right to convert
their debentures in accordance with the conversion terms
described above. At certain times during the year, based on the
Companys common stock price, the Company had the right to
call the debentures under this provision. As of
December 28, 2008, the Company did not have the right to
call the debentures. The Company believes a call would result in
conversion by the holders of the debentures and issuance of the
shares, thereby increasing the number of shares outstanding.
Thus far, based on the Companys targeted capital structure
and the low cost of the debentures, when the debentures have
been callable the Company has believed that it was more
economically beneficial for it to not exercise its right to call
the debentures. Currently, this economic benefit includes a
lower cash cost of paying interest on the debentures than the
Company would pay in dividends on the incremental number of
shares that would be outstanding. The Company will continue to
assess, at times when it is available, the desirability of
exercising the call option in the future based on the then
existing economic circumstances and the Companys business
objectives. The holders of these debentures may also put the
notes back to Hasbro in December 2011 and December 2016 at the
original principal amount. At that time, the purchase price may
be paid in cash, shares of common stock or a combination of the
two, at the Companys discretion. While the Companys
current intent is to settle in cash any puts exercised, there
can be no guarantee that the Company will have the funds
necessary to settle this obligation in cash.
The $350,000 notes due in 2017 bear interest at a rate of 6.30%,
which may be adjusted upward in the event that the
Companys credit rating from Moodys Investor
Services, Inc., Standard & Poors Ratings
Services or Fitch Ratings is decreased two levels below the
Companys credit ratings on the date of issuance of the
notes. From the date of issuance through December 28, 2008,
the Companys ratings from Moodys Investor Services,
Inc., Standard & Poors Ratings Services and
Fitch Ratings were BBB, Baa2 and BBB, respectively. The interest
rate adjustment is dependent on the degree of decrease of the
Companys ratings and could range from 0.25% to a maximum
of 2%. The Company may redeem the notes at its option at the
greater of the principal amount of the notes or the present
value of the remaining scheduled payments discounted using the
effective interest rate on applicable U.S. Treasury bills
at the time of repurchase. The Company currently has an open
authorization from its Board of Directors to issue up to an
additional $425,000 of long-term debt.
Including the debentures and notes described above, the Company
has remaining principal amounts of long-term debt at
December 28, 2008 of approximately $709,723 due at varying
times from 2017 through 2028. In addition, the Company is
committed to guaranteed royalty and other contractual payments
of approximately $16,041 in 2009. The Company also had letters
of credit and other similar instruments of approximately
$100,700 and purchase commitments of $227,673 outstanding at
December 28, 2008. The Company believes that cash from
operations, including the securitization facility, and, if
necessary, its line of credit, will allow the Company to meet
these and other obligations described above.
Critical
Accounting Policies and Significant Estimates
The Company prepares its consolidated financial statements in
accordance with accounting principles generally accepted in the
United States of America. As such, management is required to
make certain estimates, judgments and assumptions that it
believes are reasonable based on information available. These
estimates and assumptions affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses for the periods
presented. The significant accounting policies which management
believes are the most critical to aid in fully understanding and
32
evaluating the Companys reported financial results include
sales allowances, recoverability of goodwill and intangible
assets, recoverability of royalty advances and commitments,
pension costs and obligations, stock-based compensation and
income taxes.
Sales
Allowances
Sales allowances for customer promotions, discounts and returns
are recorded as a reduction of revenue when the related revenue
is recognized. Revenue from product sales is recognized upon
passing of title to the customer, generally at the time of
shipment. Revenue from product sales, less related sales
allowances, is added to royalty revenue and reflected as net
revenues in the consolidated statements of operations. The
Company routinely commits to promotional sales allowance
programs with customers. These allowances primarily relate to
fixed programs, which the customer earns based on purchases of
Company products during the year. Discounts and allowances are
recorded as a reduction of related revenue at the time of sale.
While many of the allowances are based on fixed amounts, certain
of the allowances, such as the returns allowance, are based on
market data, historical trends and information from customers
and are therefore subject to estimation.
For its allowance programs that are not fixed, such as returns,
the Company estimates these amounts using a combination of
historical experience and current market conditions. These
estimates are reviewed periodically against actual results and
any adjustments are recorded at that time as an increase or
decrease to net revenues. During 2008, there have been no
material adjustments to the Companys estimates made in
prior years.
Recoverability
of Goodwill and Intangible Assets
Goodwill and other intangible assets deemed to have indefinite
lives are tested for impairment at least annually. If an event
occurs or circumstances change that indicate that the carrying
value may not be recoverable, the Company will perform an
interim test at that time. The impairment test begins by
allocating goodwill and intangible assets to applicable
reporting units. Goodwill is then tested using a two step
process that begins with an estimation of the fair value of the
reporting unit using an income approach, which looks to the
present value of expected future cash flows.
The first step is a screen for potential impairment while the
second step measures the amount of impairment if there is an
indication from the first step that one exists. Intangible
assets with indefinite lives are tested for impairment by
comparing their carrying value to their estimated fair value
which is also calculated using an income approach. The
Companys annual impairment test was performed in the
fourth quarter of 2008 and no impairment was indicated. The
estimation of future cash flows requires significant judgments
and estimates with respect to future revenues related to the
respective asset and the future cash outlays related to those
revenues. Actual revenues and related cash flows or changes in
anticipated revenues and related cash flows could result in a
change in this assessment and result in an impairment charge.
The estimation of discounted cash flows also requires the
selection of an appropriate discount rate. The use of different
assumptions would increase or decrease estimated discounted cash
flows and could increase or decrease the related impairment
charge. At December 28, 2008, the Company has goodwill and
intangible assets with indefinite lives of $550,235 recorded on
the balance sheet.
Intangible assets, other than those with indefinite lives, are
amortized over their estimated useful lives and are reviewed for
indications of impairment whenever events or changes in
circumstances indicate the carrying value may not be
recoverable. Recoverability of the value of these intangible
assets is measured by a comparison of the assets carrying
value to the estimated future undiscounted cash flows expected
to be generated by the asset. If such assets were considered to
be impaired, the impairment would be measured by the amount by
which the carrying value of the asset exceeds its fair value
based on estimated future discounted cash flows. The estimation
of future cash flows requires significant judgments and
estimates with respect to future revenues related to the
respective asset and the future cash outlays related to those
revenues. Actual revenues and related cash flows or changes in
anticipated revenues and related cash flows could result in a
change in this assessment and result in an impairment charge.
The estimation of discounted cash flows also requires the
selection of an appropriate discount rate. The use of different
assumptions would increase or
33
decrease estimated discounted cash flows and could increase or
decrease the related impairment charge. Intangible assets
covered under this policy were $492,674 at December 28,
2008. During 2008, there were no impairment charges related to
these intangible assets.
Recoverability
of Royalty Advances and Commitments
The recoverability of royalty advances and contractual
obligations with respect to minimum guaranteed royalties is
assessed by comparing the remaining minimum guaranty to the
estimated future sales forecasts and related cash flow
projections to be derived from the related product. If sales
forecasts and related cash flows from the particular product do
not support the recoverability of the remaining minimum guaranty
or, if the Company decides to discontinue a product line with
royalty advances or commitments, a charge to royalty expense to
write-off the non-recoverable minimum guaranty is required. The
preparation of revenue forecasts and related cash flows for
these products requires judgments and estimates. Actual revenues
and related cash flows or changes in the assessment of
anticipated revenues and cash flows related to these products
could result in a change to the assessment of recoverability of
remaining minimum guaranteed royalties. At December 28,
2008, the Company had $70,982 of prepaid royalties, $44,329 of
which are included in prepaid expenses and other current assets
and $26,653 which are included in other assets.
Pension
Costs and Obligations
The Company, except for certain international subsidiaries, has
pension plans covering substantially all of its full-time
employees. Pension expense is based on actuarial computations of
current and future benefits using estimates for expected return
on assets and applicable discount rates. At the end of 2007 the
Company froze benefits under its two largest pension plans in
the U.S., with no future benefits accruing to employees. The
Company will continue to pay benefits under the plan consistent
with the provisions existing at the date of the plan benefit
freeze.
The estimates for the Companys U.S. plans are
established at the Companys measurement date. In
accordance with the provisions of Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, (SFAS No. 158), the Company
uses its fiscal year-end date as its measurement date to measure
the liabilities and assets of the plans and to establish the
expense for the upcoming year.
The Company estimates expected return on assets using a weighted
average rate based on historical market data for the investment
classes of assets held by the plan, the allocation of plan
assets among those investment classes, and the current economic
environment. Based on this information, the Companys
estimate of expected return on U.S. plan assets used in the
calculation of 2008 pension expense for the U.S. plans was
8.75%. A decrease in the estimate used for expected return on
plan assets would increase pension expense, while an increase in
this estimate would decrease pension expense. A decrease of
0.25% in the estimate of expected return on plan assets would
have increased 2008 pension expense for U.S. plans by
approximately $685.
Discount rates are selected based upon rates of return at the
measurement date on high quality corporate bond investments
currently available and expected to be available during the
period to maturity of the pension benefits. The Companys
discount rate for its U.S. plans used for the calculation
of 2008 pension expense averaged 6.34%. A decrease in the
discount rate would result in greater pension expense while an
increase in the discount rate would decrease pension expense. A
decrease of 0.25% in the Companys discount rate would have
increased 2008 pension expense and the 2008 projected benefit
obligation by approximately $165 and $7,972, respectively.
In accordance with Statement of Financial Accounting Standards
No. 87, Employers Accounting for Pensions,
actual results that differ from the actuarial assumptions are
accumulated and, if outside a certain corridor, amortized over
future periods and, therefore generally affect recognized
expense in future periods. At December 28, 2008, the
Companys U.S. plans had unrecognized actuarial losses
of $87,906 included in accumulated other comprehensive income
related to its defined benefit pension plans compared to $19,158
at December 30, 2007. The increase primarily reflects a
decrease in the fair value of plan assets in 2008. Pension
34
plan assets are valued on the basis of their fair market value
on the measurement date. These changes in the fair market value
of plan assets impact the amount of future pension expense due
to amortization of the unrecognized actuarial losses.
Stock-Based
Compensation
The Company has a stock-based compensation plan for employees
and non-employee members of the Companys Board of
Directors. Under this plan, the Company may grant stock options
at or above the fair market value of the Companys stock,
as well as restricted stock, restricted stock units and
contingent stock performance awards. The Company measures all
stock-based compensation awards using a fair value method and
records such expense in its consolidated financial statements.
Total stock-based compensation expense recognized for the years
ended December 28, 2008, December 30, 2007 and
December 31, 2006 was $35,221, $29,402 and $22,832,
respectively. As of December 28, 2008, total unrecognized
stock-based compensation cost was approximately $33,700.
The Company uses the Black-Scholes option pricing model to value
stock options that are granted under these plans. The
Black-Scholes method includes four significant assumptions:
(1) expected term of the options, (2) risk-free
interest rate, (3) expected dividend yield, and
(4) expected stock price volatility. For the Companys
2008, 2007 and 2006 stock option grants, the weighted average
expected term was approximately 5 years. This amount is
based on a review of employees exercise history relating
to stock options as well as the contractual term of the option.
The weighted average risk-free interest rates used for 2008,
2007 and 2006 stock option grants were 2.71%, 4.79% and 4.98%,
respectively. This estimate was based on the interest rate
available on U.S. treasury securities with durations that
approximate the expected term of the option. The weighted
average expected dividend yields used for the 2008, 2007 and
2006 stock option grants were 2.95%, 1.97% and 2.55%,
respectively, which is based on the Companys current
annual dividend amount divided by the stock price on the date of
the grant. The weighted average expected stock price
volatilities used were 22% for 2008 and 2007 stock option grants
and 24% for 2006 stock option grants. These amounts were derived
using a combination of current and historical implied price
volatility. Implied price volatility reflects the volatility
implied in publicly traded options on the Companys common
stock, which the Company believes represents the expected future
volatility of the Companys stock price. The Company
believes that since this is a market-based estimate, it provides
a better estimate of expected future volatility as compared to
based only on historical volatility.
In 2008, 2007 and 2006, as part of its employee stock-based
compensation plan, the Company issued contingent stock
performance awards, which provide the recipients with the
ability to earn shares of the Companys common stock based
on the Companys achievement of stated cumulative diluted
earnings per share and cumulative net revenue targets over the
three fiscal years ended December 2010 for the 2008 award, over
the three fiscal years ended December 2009 for the 2007 award,
and over a ten quarter period beginning July 3, 2006 and
ending December 2008 for the 2006 award. Each award has a target
number of shares of common stock associated with such award
which may be earned by the recipient if the Company achieves the
stated diluted earnings per share and net revenue targets. These
awards are valued based on the fair market value of the
Companys common stock on the date of the grant and
expensed over the performance period. The measurement of the
expense related to this award is based on the Companys
current estimate of revenues and diluted earnings per share over
the performance period. Changes in these estimates may impact
the expense recognized related to these awards.
Income
Taxes
The Companys annual income tax rate is based on its
income, statutory tax rates, changes in prior tax positions, and
tax planning opportunities available in the various
jurisdictions in which it operates. Significant judgment and
estimates are required to determine the Companys annual
tax rate and in evaluating its tax positions. Despite the
Companys belief that its tax return positions are fully
supportable, these positions are subject to challenge and
estimated liabilities are established in the event that these
positions are challenged and the Company is not successful in
defending these challenges. These estimated liabilities are
adjusted, as well as the related interest, in light of changing
facts and circumstances, such as the progress of a tax audit.
35
An estimated effective income tax rate is applied to the
Companys quarterly operating results. In the event there
is a significant unusual or extraordinary item recognized in the
Companys quarterly operating results, the tax attributable
to that item is separately calculated and recorded at the time.
Changes in the Companys estimated effective income tax
rate during 2008 were primarily due to changes in its estimate
of earnings by tax jurisdiction. In addition, changes in
judgment regarding likely outcomes related to tax positions
taken in a prior fiscal year, or tax costs or benefits from a
resolution of such positions would be recorded entirely in the
interim period the judgment changes or resolution occurs. During
2008, the Company recorded a total benefit of approximately
$10,200 related to discrete tax events primarily comprised of a
benefit related to the repatriation of certain foreign earnings
to the U.S., as well as the settlement of various tax
examinations in multiple jurisdictions.
In certain cases, tax law requires items to be included in the
Companys income tax returns at a different time than when
these items are recognized on the financial statements or at a
different amount than that which is recognized in the financial
statements. Some of these differences are permanent, such as
expenses that are not deductible on the Companys tax
returns, while other differences are temporary and will reverse
over time, such as depreciation expense. These differences that
will reverse over time are recorded as deferred tax assets and
liabilities on the consolidated balance sheet. Deferred tax
assets represent credits or deductions that have been reflected
in the financial statements but have not yet been reflected in
the Companys income tax returns. Valuation allowances are
established against deferred tax assets to the extent that it is
determined that the Company will have insufficient future
taxable income, including capital gains, to fully realize the
future credits, deductions or capital losses. Deferred tax
liabilities represent expenses recognized in the Companys
income tax return that have not yet been recognized in the
Companys financial statements or income recognized in the
financial statements that has not yet been recognized in the
Companys income tax return. During 2007, the Mexican
government instituted a tax structure which results in companies
paying the higher of an income-based tax or an alternative flat
tax commencing in 2008. Should the Company be subject to the
alternative flat tax, it would be required to review whether its
net deferred tax assets would be realized. During 2008 the
Company was subject to the income-based tax. As the Company
believes that it will continue to be subject to the income-based
tax in 2009, it believes that the net deferred tax assets
related to the Mexican tax jurisdiction will be realizable.
Should the facts and circumstances change, the Company may be
required to reevaluate deferred tax assets related to its
Mexican operations, which may result in additional tax expense.
Contractual
Obligations and Commercial Commitments
In the normal course of its business, the Company enters into
contracts related to obtaining rights to produce product under
license, which may require the payment of minimum guarantees, as
well as contracts related to the leasing of facilities and
equipment. In addition, the Company has $709,723 in principal
amount of long-term debt outstanding at December 28, 2008.
Future payments required under these and other obligations as of
December 28, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year
|
|
Certain Contractual Obligations
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Long-term debt
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709,723
|
|
|
|
709,723
|
|
Interest payments on long-term debt
|
|
|
36,173
|
|
|
|
36,173
|
|
|
|
36,173
|
|
|
|
36,173
|
|
|
|
36,173
|
|
|
|
251,956
|
|
|
|
432,821
|
|
Operating lease commitments
|
|
|
30,921
|
|
|
|
22,118
|
|
|
|
16,559
|
|
|
|
11,923
|
|
|
|
9,527
|
|
|
|
10,522
|
|
|
|
101,570
|
|
Future minimum guaranteed contractual payments
|
|
|
16,041
|
|
|
|
5,605
|
|
|
|
36,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,818
|
|
Purchase commitments
|
|
|
227,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310,808
|
|
|
|
63,896
|
|
|
|
88,904
|
|
|
|
48,096
|
|
|
|
45,700
|
|
|
|
972,201
|
|
|
|
1,529,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a liability at December 28, 2008, including
potential interest and penalties, of $92,812 for uncertain tax
positions that have been taken or are expected to be taken in
various income tax returns. The Company does not know the
ultimate resolution of these uncertain tax positions and as
such, does not know
36
the ultimate timing of payments related to this liability.
Accordingly, these amounts are not included in the table above.
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 28,
2008, these debentures may be converted to shares at an initial
conversion price of $21.60 per share through March 31,
2009, at which time the requirements of the contingent
conversion feature will be reevaluated. If the closing price of
the Companys common 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 Companys 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 in the table above
include future guaranteed contractual royalty payments of
$35,000 payable to Marvel that are contingent upon the
theatrical release of SPIDER-MAN 4 which the Company currently
expects to be paid in 2011. Subsequent to December 28,
2008, the Company entered into an agreement with Marvel that
resulted in the extension of the current agreement from the end
of 2011 through the end of 2017. The extended agreement includes
an additional $100,000 in minimum guaranteed royalties, with the
potential for up to an additional $140,000 in guaranteed
royalties contingent upon the release by Marvel of certain
MARVEL character-based theatrical releases that meet certain
defined criteria. Amounts that are or may be payable to Marvel
under this extended agreement are not reflected in the table
above.
In addition to the amounts included in the table above, the
Company expects to make contributions totaling approximately
$17,100 related to its unfunded U.S. and other
International pension plans in 2009. The Company also has
letters of credit and related instruments of approximately
$100,700 at December 28, 2008.
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 $64,500
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
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 Companys 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 Companys
revenues and earnings due to translation of foreign revenues and
costs. 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 28, 2008, these contracts had unrealized gains of
$72,053, of which $32,203 are recorded in prepaid expenses and
other current assets and $39,850 are recorded in other assets.
Included in accumulated other comprehensive income at
December 28, 2008 are deferred gains of $63,513, net of tax.
37
At December 28, 2008, the Company had fixed rate long-term
debt of $709,723. The Company estimates that a hypothetical one
percentage point decrease or increase in interest rates would
increase or decrease the fair value of this long-term debt by
approximately $34,300 or $30,900, respectively.
The
Economy and Inflation
The principal market for the Companys products is the
retail sector. Revenues from the Companys top five
customers, all retailers, accounted for approximately 52% of its
consolidated net revenues in 2008 and 2007 and 53% of its
consolidated net revenues in 2006. In the past three 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 Companys revenue pattern continues to show the second
half of the year to be more significant to its overall business
for the full year. In 2008, approximately 63% of the
Companys full year net revenues were recognized in the
second half of the year. Although the Company expects that this
concentration will continue, particularly as more of its
business has shifted to larger customers with order patterns
concentrated in the second half of the year, this concentration
may be less in years where the Company has products related to a
major motion picture release that occurs in the first half of
the year. In 2008 the Company had products related to the
mid-year major motion picture releases of IRONMAN, THE
INCREDIBLE HULK and INDIANA JONES AND THE KINGDOM OF THE CRYSTAL
SKULL. 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 strategies,
inventory levels, policies of retailers and differences in
overall economic conditions. The trend of larger retailers has
been to maintain lower inventories throughout the year and
purchase a greater percentage of product within or close to the
fourth quarter holiday consumer selling season, which includes
Christmas.
Quick response inventory management practices being used by
retailers result in more orders being placed for immediate
delivery and fewer orders being placed well in advance of
shipment. Retailers are timing their orders so that they are
being filled by suppliers closer to the time of purchase by
consumers. To the extent that retailers do not sell as much of
their year-end inventory purchases during this holiday selling
season as they had anticipated, their demand for additional
product earlier in the following fiscal year may be curtailed,
thus negatively impacting the Companys revenues. In
addition, the bankruptcy or other lack of success of one of the
Companys significant retailers could negatively impact the
Companys future revenues.
The effect of inflation on the Companys operations during
2008 was not significant and the Company will continue its
policy of monitoring costs and adjusting prices, accordingly.
New
Accounting Pronouncements
Effective at the beginning of 2009, the Company is required to
prospectively adopt the provisions of Statement of Financial
Accounting Standards No. 141 (Revised 2007), Business
Combinations, (SFAS 141R), which makes
certain modifications to the accounting for business
combinations. These changes include (1) the requirement for
an acquirer to recognize all assets acquired and liabilities
assumed at their fair value on the acquisition date;
(2) the requirement for an acquirer to recognize assets or
liabilities arising from contingencies at fair value as of that
acquisition date; and (3) the requirement that an acquirer
expense all acquisition related costs. This Statement is
required to be applied prospectively to business combinations
for which the acquisition date is on or after the beginning of
fiscal 2009.
Effective at the beginning of 2009, the Company is required to
prospectively adopt the provisions of Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements,
(SFAS 160) which requires noncontrolling
(minority) interests in subsidiaries to be initially measured at
fair value and presented as a separate component of
shareholders equity. Current practice is to present
noncontrolling interests as a liability or other item outside of
equity. The presentation and disclosure provisions of
SFAS 160 are required to be applied on a retrospective
basis. The Company does not expect the adoption of SFAS 160
to have an impact on its consolidated balance sheet or results
of operations.
38
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities,
(SFAS 161), which requires enhanced disclosures
related to derivative instruments and hedging activities. This
Statement is effective for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, and the disclosure requirements will be
applicable for the Companys 2009 consolidated financial
statements.
In December 2008, the FASB issued FASB Staff Position
No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets,
(FSP 132(R)-1). FSP 132(R)-1 provides
guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan. The
disclosures required by FSP 132(R)-1 will be applicable for
the Companys year-end 2009 financial statements.
In 2009 the Company will adopt the remaining provisions of
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, (SFAS 157)
for non-financial assets. The adoption of these provisions will
not have an impact on the Companys statements of
operations or statement of financial position.
Other
Information
The Company is not aware of any material amounts of potential
exposure relating to environmental matters and does not believe
its environmental compliance costs or liabilities to be material
to its operating results or financial position.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The information required by this item is included in Item 7
of Part II of this Report and is incorporated herein by
reference.
39
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Shareholders
Hasbro, Inc.:
We have audited the accompanying consolidated balance sheets of
Hasbro, Inc. and subsidiaries as of December 28, 2008 and
December 30, 2007, and the related consolidated statements
of operations, shareholders equity, and cash flows for
each of the fiscal years in the three-year period ended
December 28, 2008. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Hasbro, Inc. and subsidiaries as of
December 28, 2008 and December 30, 2007, and the
results of their operations and their cash flows for each of the
fiscal years in the three-year period ended December 28,
2008, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Hasbro, Inc.s internal control over financial reporting as
of December 28, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 24, 2009 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/s/ KPMG LLP
Providence, Rhode Island
February 24, 2009
40
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 2008 and December 30, 2007
(Thousands of Dollars Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
630,390
|
|
|
|
774,458
|
|
Accounts receivable, less allowance for doubtful accounts of
$32,400 in 2008 and $30,600 in 2007
|
|
|
611,766
|
|
|
|
654,789
|
|
Inventories
|
|
|
300,463
|
|
|
|
259,081
|
|
Prepaid expenses and other current assets
|
|
|
171,387
|
|
|
|
199,912
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,714,006
|
|
|
|
1,888,240
|
|
Property, plant and equipment, net
|
|
|
211,707
|
|
|
|
187,960
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
474,497
|
|
|
|
471,177
|
|
Other intangibles, net
|
|
|
568,412
|
|
|
|
486,232
|
|
Other
|
|
|
200,175
|
|
|
|
203,454
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,243,084
|
|
|
|
1,160,863
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,168,797
|
|
|
|
3,237,063
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
7,586
|
|
|
|
10,201
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
135,348
|
|
Accounts payable
|
|
|
184,453
|
|
|
|
186,202
|
|
Accrued liabilities
|
|
|
607,853
|
|
|
|
555,920
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
799,892
|
|
|
|
887,671
|
|
Long-term debt, excluding current portion
|
|
|
709,723
|
|
|
|
709,723
|
|
Other liabilities
|
|
|
268,396
|
|
|
|
254,577
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,778,011
|
|
|
|
1,851,971
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preference stock of $2.50 par value. Authorized
5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock of $0.50 par value. Authorized
600,000,000 shares; issued 209,694,630 shares in
2008 and 2007
|
|
|
104,847
|
|
|
|
104,847
|
|
Additional paid-in capital
|
|
|
450,155
|
|
|
|
369,092
|
|
Retained earnings
|
|
|
2,456,650
|
|
|
|
2,261,561
|
|
Accumulated other comprehensive earnings
|
|
|
62,256
|
|
|
|
74,938
|
|
Treasury stock, at cost, 70,465,216 shares in 2008 and
64,487,616 shares in 2007
|
|
|
(1,683,122
|
)
|
|
|
(1,425,346
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,390,786
|
|
|
|
1,385,092
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
3,168,797
|
|
|
|
3,237,063
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended in December
(Thousands of Dollars Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenues
|
|
$
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
3,151,481
|
|
Cost of sales
|
|
|
1,692,728
|
|
|
|
1,576,621
|
|
|
|
1,303,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,328,792
|
|
|
|
2,260,936
|
|
|
|
1,847,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
78,265
|
|
|
|
67,716
|
|
|
|
78,934
|
|
Royalties
|
|
|
312,986
|
|
|
|
316,807
|
|
|
|
169,731
|
|
Research and product development
|
|
|
191,424
|
|
|
|
167,194
|
|
|
|
171,358
|
|
Advertising
|
|
|
454,612
|
|
|
|
434,742
|
|
|
|
368,996
|
|
Selling, distribution and administration
|
|
|
797,209
|
|
|
|
755,127
|
|
|
|
682,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,834,496
|
|
|
|
1,741,586
|
|
|
|
1,471,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
494,296
|
|
|
|
519,350
|
|
|
|
376,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
47,143
|
|
|
|
34,618
|
|
|
|
27,521
|
|
Interest income
|
|
|
(17,654
|
)
|
|
|
(29,973
|
)
|
|
|
(27,609
|
)
|
Other (income) expense, net
|
|
|
23,752
|
|
|
|
52,323
|
|
|
|
34,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
53,241
|
|
|
|
56,968
|
|
|
|
34,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
441,055
|
|
|
|
462,382
|
|
|
|
341,474
|
|
Income taxes
|
|
|
134,289
|
|
|
|
129,379
|
|
|
|
111,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
306,766
|
|
|
|
333,003
|
|
|
|
230,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.18
|
|
|
|
2.13
|
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.00
|
|
|
|
1.97
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
|
|
$
|
0.80
|
|
|
|
0.64
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
42
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended in December
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
306,766
|
|
|
|
333,003
|
|
|
|
230,055
|
|
Adjustments to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of plant and equipment
|
|
|
87,873
|
|
|
|
88,804
|
|
|
|
67,773
|
|
Amortization
|
|
|
78,265
|
|
|
|
67,716
|
|
|
|
78,934
|
|
Loss on impairment of investment
|
|
|
|
|
|
|
|
|
|
|
2,629
|
|
Change in fair value of liabilities potentially
|
|
|
|
|
|
|
|
|
|
|
|
|
settleable in common stock
|
|
|
|
|
|
|
44,370
|
|
|
|
31,770
|
|
Deferred income taxes
|
|
|
24,994
|
|
|
|
37,578
|
|
|
|
24,967
|
|
Stock-based compensation
|
|
|
35,221
|
|
|
|
29,402
|
|
|
|
22,832
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(14,220
|
)
|
|
|
(74,941
|
)
|
|
|
(10,708
|
)
|
Increase in inventories
|
|
|
(69,871
|
)
|
|
|
(44,267
|
)
|
|
|
(17,623
|
)
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
74,734
|
|
|
|
79,247
|
|
|
|
(35,174
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
56,143
|
|
|
|
64,936
|
|
|
|
(35,639
|
)
|
Other, including long-term advances
|
|
|
13,280
|
|
|
|
(24,054
|
)
|
|
|
(39,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
593,185
|
|
|
|
601,794
|
|
|
|
320,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(117,143
|
)
|
|
|
(91,532
|
)
|
|
|
(82,103
|
)
|
Investments and acquisitions, net of cash acquired
|
|
|
(154,757
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
Purchases of short-term investments
|
|
|
(42,000
|
)
|
|
|
(43,700
|
)
|
|
|
(941,120
|
)
|
Proceeds from sales of short-term investments
|
|
|
42,000
|
|
|
|
43,700
|
|
|
|
941,120
|
|
Other
|
|
|
(20
|
)
|
|
|
(2,933
|
)
|
|
|
(1,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash utilized by investing activities
|
|
|
(271,920
|
)
|
|
|
(112,465
|
)
|
|
|
(83,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from borrowings with original maturities of more
than three months
|
|
|
|
|
|
|
346,009
|
|
|
|
|
|
Repayments of borrowings with original maturities of more than
three months
|
|
|
(135,092
|
)
|
|
|
|
|
|
|
(32,743
|
)
|
Net repayments of other short-term borrowings
|
|
|
(645
|
)
|
|
|
(1,150
|
)
|
|
|
(3,726
|
)
|
Purchases of common stock
|
|
|
(360,244
|
)
|
|
|
(584,349
|
)
|
|
|
(456,744
|
)
|
Purchase of Lucas warrants
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
|
|
Stock option transactions
|
|
|
120,895
|
|
|
|
82,661
|
|
|
|
86,257
|
|
Excess tax benefits from stock-based compensation
|
|
|
24,760
|
|
|
|
17,009
|
|
|
|
14,959
|
|
Dividends paid
|
|
|
(107,065
|
)
|
|
|
(94,097
|
)
|
|
|
(75,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash utilized by financing activities
|
|
|
(457,391
|
)
|
|
|
(433,917
|
)
|
|
|
(467,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(7,942
|
)
|
|
|
3,646
|
|
|
|
3,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(144,068
|
)
|
|
|
59,058
|
|
|
|
(226,868
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
774,458
|
|
|
|
715,400
|
|
|
|
942,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
630,390
|
|
|
|
774,458
|
|
|
|
715,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
50,696
|
|
|
|
27,374
|
|
|
|
26,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
49,152
|
|
|
|
123,325
|
|
|
|
84,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes (4) and (11) for disclosure of financing and
investing activities not affecting cash.
See accompanying notes to consolidated financial statements.
43
HASBRO,
INC. AND SUBSIDIARIES
Consolidated
Statements of Shareholders Equity
(Thousands
of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance, December 25, 2005
|
|
$
|
104,847
|
|
|
|
358,199
|
|
|
|
(24
|
)
|
|
|
1,869,007
|
|
|
|
15,348
|
|
|
|
(623,901
|
)
|
|
|
1,723,476
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,055
|
|
|
|
|
|
|
|
|
|
|
|
230,055
|
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,588
|
|
|
|
|
|
|
|
22,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,643
|
|
Adjustment to adopt SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,750
|
)
|
|
|
|
|
|
|
(26,750
|
)
|
Stock option and warrant transactions
|
|
|
|
|
|
|
(58,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,645
|
|
|
|
101,147
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,744
|
)
|
|
|
(456,744
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
22,553
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
22,832
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,714
|
)
|
|
|
|
|
|
|
|
|
|
|
(78,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
104,847
|
|
|
|
322,254
|
|
|
|
|
|
|
|
2,020,348
|
|
|
|
11,186
|
|
|
|
(920,745
|
)
|
|
|
1,537,890
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,003
|
|
|
|
|
|
|
|
|
|
|
|
333,003
|
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,973
|
|
|
|
|
|
|
|
55,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,976
|
|
SFAS No. 158 measurement date change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,143
|
)
|
|
|
7,779
|
|
|
|
|
|
|
|
5,636
|
|
Adjustment to adopt FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,358
|
|
|
|
|
|
|
|
|
|
|
|
8,358
|
|
Conversion of debentures
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
168
|
|
Stock option and warrant transactions
|
|
|
|
|
|
|
17,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,092
|
|
|
|
99,671
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(587,004
|
)
|
|
|
(587,004
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
29,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
29,402
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,005
|
)
|
|
|
|
|
|
|
|
|
|
|
(98,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2007
|
|
|
104,847
|
|
|
|
369,092
|
|
|
|
|
|
|
|
2,261,561
|
|
|
|
74,938
|
|
|
|
(1,425,346
|
)
|
|
|
1,385,092
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306,766
|
|
|
|
|
|
|
|
|
|
|
|
306,766
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,682
|
)
|
|
|
|
|
|
|
(12,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,084
|
|
Stock option transactions
|
|
|
|
|
|
|
45,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,708
|
|
|
|
145,655
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357,589
|
)
|
|
|
(357,589
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
35,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
35,221
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111,677
|
)
|
|
|
|
|
|
|
|
|
|
|
(111,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2008
|
|
$
|
104,847
|
|
|
|
450,155
|
|
|
|
|
|
|
|
2,456,650
|
|
|
|
62,256
|
|
|
|
(1,683,122
|
)
|
|
|
1,390,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
(Thousands
of Dollars and Shares Except Per Share Data)
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
Hasbro, Inc. and all majority-owned subsidiaries
(Hasbro or the Company). Investments
representing 20% to 50% ownership interest in other companies
are accounted for using the equity method. The Company had no
equity method investments at December 28, 2008 that were
material to the consolidated financial statements. All
significant intercompany balances and transactions have been
eliminated.
Preparation
of Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
notes thereto. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 2007 and 2006 consolidated financial
statements have been reclassified to conform to the 2008
presentation.
Fiscal
Year
Hasbros fiscal year ends on the last Sunday in December.
The fiscal years ended December 28, 2008 and
December 30, 2007 were fifty-two week periods while the
fiscal year ended December 31, 2006 was a fifty-three week
period.
Cash
and Cash Equivalents
Cash and cash equivalents include all cash balances and highly
liquid investments purchased with a maturity to the Company of
three months or less.
Marketable
Securities
Marketable securities are comprised of investments in
publicly-traded securities, classified as
available-for-sale,
and are recorded at fair value with unrealized gains or losses,
net of tax, reported as a component of accumulated other
comprehensive earnings (AOCE) within
shareholders equity until realized. Unrealized losses are
evaluated to determine the nature of the losses. If the losses
are determined to be other than temporary, the basis of the
security is adjusted and the loss is recognized in earnings at
that time. These securities are included in other assets in the
accompanying consolidated balance sheets.
Accounts
Receivable and Allowance for Doubtful Accounts
Credit is granted to customers predominantly on an unsecured
basis. Credit limits and payment terms are established based on
extensive evaluations made on an ongoing basis throughout the
fiscal year with regard to the financial performance, cash
generation, financing availability and liquidity status of each
customer. The majority of customers are formally reviewed at
least annually; more frequent reviews are performed based on the
customers financial condition and the level of credit
being extended. For customers on credit who are experiencing
financial difficulties, management performs additional financial
analyses before shipping orders. The Company uses a variety of
financial transactions based on availability and cost, to
increase the collectibility of certain of its accounts,
including letters of credit, credit insurance, factoring with
unrelated third parties, and requiring cash in advance of
shipping.
45
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The Company records an allowance for doubtful accounts at the
time revenue is recognized based on managements assessment
of the business environment, customers financial
condition, historical collection experience, accounts receivable
aging and customer disputes. When a significant event occurs,
such as a bankruptcy filing by a specific customer, and on a
quarterly basis, the allowance is reviewed for adequacy and the
balance or accrual rate is adjusted to reflect current risk
prospects.
Inventories
Inventories are valued at the lower of cost
(first-in,
first-out) or market. Based upon a consideration of quantities
on hand, actual and projected sales volume, anticipated product
selling price and product lines planned to be discontinued,
slow-moving and obsolete inventory is written down to its
estimated net realizable value.
At December 28, 2008 and December 30, 2007, finished
goods comprised 93% and 91% of inventories, respectively.
Long-Lived
Assets
The Companys long-lived assets consist of property, plant
and equipment, goodwill and intangible assets with indefinite
lives as well as other intangible assets the Company considers
to have a defined life.
Goodwill results from acquisitions the Company has made over
time. Substantially all of the other intangibles consist of the
cost of acquired product rights. In establishing the value of
such rights, the Company considers existing trademarks,
copyrights, patents, license agreements and other
product-related rights. These rights were valued at their
acquisition date based on the anticipated future cash flows from
the underlying product line. The Company has certain intangible
assets related to the Tonka and Milton Bradley acquisitions that
have an indefinite life.
Goodwill and intangible assets deemed to have indefinite lives
are not amortized and are tested for impairment at least
annually. The annual test begins with goodwill and all
intangible assets being allocated to applicable reporting units.
Goodwill is then tested using a two-step process that begins
with an estimation of fair value of the reporting unit using an
income approach, which looks to the present value of expected
future cash flows. The first step is a screen for potential
impairment while the second step measures the amount of
impairment if there is an indication from the first step that
one exists. Intangible assets with indefinite lives are tested
annually for impairment by comparing their carrying value to
their estimated fair value, also calculated using the present
value of expected future cash flows.
The remaining intangibles having defined lives are being
amortized over periods ranging from five to twenty-five years,
primarily using the straight-line method. At December 28,
2008, approximately 6% of other intangibles relate to rights
acquired in connection with a major entertainment property and
are being amortized over the contract life, in proportion to
projected sales of the licensed products during the same period.
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using
accelerated and straight-line methods to depreciate the cost of
property, plant and equipment over their estimated useful lives.
The principal lives, in years, used in determining depreciation
rates of various assets are: land improvements 15 to 19,
buildings and improvements 15 to 25 and machinery and equipment
3 to 12. Depreciation expense is classified on the statement of
operations based on the nature of the property and equipment
being depreciated. Tools, dies and molds are depreciated over a
three-year period or their useful lives, whichever is less,
using an accelerated method. The Company generally owns all
tools, dies and molds related to its products.
46
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The Company reviews property, plant and equipment and other
intangibles with defined lives for impairment whenever events or
changes in circumstances indicate the carrying value may not be
recoverable. Recoverability is measured by a comparison of the
carrying amount of an asset or asset group to future
undiscounted cash flows expected to be generated by the asset or
asset group. If such assets were considered to be impaired, the
impairment to be recognized would be measured by the amount by
which the carrying value of the assets exceeds their fair value.
Fair value is determined based on discounted cash flows or
appraised values, depending on the nature of the assets. Assets
to be disposed of are carried at the lower of the net book value
or their estimated fair value less disposal costs.
Financial
Instruments
Hasbros financial instruments include cash and cash
equivalents, accounts receivable, marketable securities,
short-term borrowings, accounts payable and accrued liabilities.
At December 28, 2008, the carrying cost of these
instruments approximated their fair value. The Companys
financial instruments at December 28, 2008 also include
long-term borrowings (see note 7 for carrying cost and
related fair values) as well as certain assets and liabilities
measured at fair value (see notes 10 and 14).
Securitization
and Transfer of Financial Instruments
Hasbro has an agreement that allows the Company to sell, on an
ongoing basis, an undivided fractional ownership interest in
certain of its trade accounts receivable through a revolving
securitization arrangement. The Company retains servicing
responsibilities for, as well as a subordinate interest in the
transferred receivables. Hasbro accounts for the securitization
of trade accounts receivable as a sale in accordance with
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities (SFAS 140). As a result, the
related receivables are removed from the consolidated balance
sheet.
Revenue
Recognition
Revenue from product sales is recognized upon the passing of
title to the customer, generally at the time of shipment.
Provisions for discounts, rebates and returns are made when the
related revenues are recognized. The Company bases its estimates
for discounts, rebates and returns on agreed customer terms and
historical experience.
The Company enters into arrangements licensing its brand names
on specifically approved products. The licensees pay the Company
royalties as products are sold, in some cases subject to minimum
guaranteed amounts. Royalty revenues are recognized as they are
reported as earned and payment becomes assured, over the life of
the agreement. Revenue from product sales less related
provisions for discounts, rebates and returns, as well as
royalty revenues comprise net revenues in the consolidated
statements of operations.
Royalties
The Company enters into license agreements with inventors,
designers and others for the use of intellectual properties in
its products. These agreements may call for payment in advance
or future payment for minimum guaranteed amounts. Amounts paid
in advance are recorded as an asset and charged to expense as
revenue from the related products is recognized. If all or a
portion of the minimum guaranteed amounts appear not to be
recoverable through future use of the rights obtained under
license, the nonrecoverable portion of the guaranty is charged
to expense at that time.
47
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Advertising
Production costs of commercials and programming are charged to
operations in the fiscal year during which the production is
first aired. The costs of other advertising, promotion and
marketing programs are charged to operations in the fiscal year
incurred.
Shipping
and Handling
Hasbro expenses costs related to the shipment and handling of
goods to customers as incurred. For 2008, 2007, and 2006, these
costs were $178,738, $167,868 and $145,729, respectively, and
are included in selling, distribution and administration
expenses.
Operating
Leases
Hasbro records lease expense in such a manner as to recognize
this expense on a straight-line basis inclusive of rent
concessions and rent increases. Reimbursements from lessors for
leasehold improvements are deferred and recognized as a
reduction to lease expense over the lease term.
Income
Taxes
Hasbro uses the asset and liability approach for financial
accounting and reporting of income taxes. Deferred income taxes
have not been provided on the majority of undistributed earnings
of international subsidiaries as the majority of such earnings
are indefinitely reinvested by the Company.
On January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation
No. 48 (FIN 48), which applies to all tax
positions accounted for under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
FIN 48 prescribes a two step process for the measurement of
uncertain tax positions that have been taken or are expected to
be taken in a tax return. The first step is a determination of
whether the tax position should be recognized in the financial
statements. The second step determines the measurement of the
tax position. FIN 48 also provides guidance on
derecognition of such tax positions, classification, potential
interest and penalties, accounting in interim periods and
disclosure. The Company records potential interest and penalties
on uncertain tax positions as a component of income tax expense.
See note 8 for further information regarding the adoption
of FIN 48.
Foreign
Currency Translation
Foreign currency assets and liabilities are translated into
U.S. dollars at period-end rates, and revenues, costs and
expenses are translated at weighted average rates during each
reporting period. Earnings include gains or losses resulting
from foreign currency transactions and, when required,
translation gains and losses resulting from the use of the
U.S. dollar as the functional currency in highly
inflationary economies. Other gains and losses resulting from
translation of financial statements are a component of other
comprehensive earnings.
Pension
Plans, Postretirement and Postemployment
Benefits
Hasbro, except for certain international subsidiaries, has
pension plans covering substantially all of its full-time
employees. Pension expense is based on actuarial computations of
current and future benefits. In December 2006, the Company
adopted the recognition provisions of Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158), which amends
SFAS 87, 88, 106 and 132(R). In 2007, the Company adopted
the measurement date provisions of SFAS 158, which required
the Company to change the measurement date of certain of its
defined benefit plans to the Companys fiscal year-end
date. Previously, the measurement date for certain of
48
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
the Companys defined benefit plans was September 30.
See notes 2 and 12 for the impact of adopting of this
statement.
The Companys policy is to fund amounts which are required
by applicable regulations and which are tax deductible. In 2009,
the Company expects to contribute approximately $17,100 to its
pension plans. The estimated amounts of future payments to be
made under other retirement programs are being accrued currently
over the period of active employment and are also included in
pension expense.
Hasbro has a contributory postretirement health and life
insurance plan covering substantially all employees who retire
under any of its United States defined benefit pension plans and
meet certain age and length of service requirements. The cost of
providing these benefits on behalf of employees who retired
prior to 1993 is and will continue to be substantially borne by
the Company. The cost of providing benefits on behalf of
substantially all employees who retire after 1992 is borne by
the employee. It also has several plans covering certain groups
of employees, which may provide benefits to such employees
following their period of employment but prior to their
retirement. The Company measures the costs of these obligations
based on actuarial computations.
Risk
Management Contracts
Hasbro uses foreign currency forward contracts to mitigate the
impact of currency rate fluctuations on firmly committed and
projected future foreign currency transactions. These
over-the-counter
contracts, which hedge future purchases of inventory and other
cross-border currency requirements not denominated in the
functional currency of the unit, are primarily denominated in
United States and Hong Kong dollars, Euros and United Kingdom
pound sterling and are entered into with a number of
counterparties, all of which are major financial institutions.
The Company believes that a default by a counterparty would not
have a material adverse effect on the financial condition of the
Company. Hasbro does not enter into derivative financial
instruments for speculative purposes.
At the inception of the contracts, Hasbro designates its
derivatives as either cash flow or fair value hedges. The
Company formally documents all relationships between hedging
instruments and hedged items as well as its risk management
objectives and strategies for undertaking various hedge
transactions. All hedges designated as cash flow hedges are
linked to forecasted transactions and the Company assesses, both
at the inception of the hedge and on an on-going basis, the
effectiveness of the derivatives used in hedging transactions in
offsetting changes in the cash flows of the forecasted
transaction. The ineffective portion of a hedging derivative, if
any, is immediately recognized in the consolidated statements of
operations.
The Company records all derivatives, such as foreign currency
exchange contracts, on the balance sheet at fair value. Changes
in the derivative fair values that are designated effective and
qualify as cash flow hedges are deferred and recorded as a
component of AOCE until the hedged transactions occur and are
then recognized in the consolidated statements of operations.
The Companys foreign currency contracts hedging
anticipated cash flows are designated as cash flow hedges. When
it is determined that a derivative is not highly effective as a
hedge, the Company discontinues hedge accounting prospectively.
Any gain or loss deferred through that date remains in AOCE
until the forecasted transaction occurs, at which time it is
reclassified to the consolidated statements of operations. To
the extent the transaction is no longer deemed probable of
occurring, hedge accounting treatment is discontinued and
amounts deferred would be reclassified to the consolidated
statements of operations. In the event hedge accounting
requirements are not met, gains and losses on such instruments
are included currently in the consolidated statements of
operations. The Company uses derivatives to economically hedge
intercompany loans denominated in foreign currencies. Due to the
short-term nature of the derivative contracts involved, the
Company does not use hedge accounting for these contracts.
49
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Accounting
for Stock-Based Compensation
The Company has stock-based employee compensation plans and
plans for non-employee members of the Companys Board of
Directors. Under these plans the Company may grant stock options
at or above the fair market value of the Companys stock,
as well as restricted stock, restricted stock units and
contingent stock performance awards. All awards are measured at
fair value at the date of the grant and amortized as expense on
a straight-line basis over the requisite service period of the
award. For awards contingent upon Company performance, the
measurement of the expense for these awards is based on the
Companys current estimate of its performance over the
performance period. See note 11 for further discussion.
Net
Earnings Per Common Share
Basic net earnings per share is computed by dividing net
earnings by the weighted average number of shares outstanding
for the year. Diluted net earnings per share is similar except
that the weighted average number of shares outstanding is
increased by dilutive securities, and net earnings are adjusted
for certain amounts related to dilutive securities. Dilutive
securities include shares issuable under convertible debt, as
well as shares issuable upon exercise of stock options and
warrants for which the market price exceeds the exercise price,
less shares which could have been purchased by the Company with
the related proceeds. Dilutive securities may also include
shares potentially issuable to settle liabilities. Options and
warrants totaling 3,491, 3,250 and 5,148 for 2008, 2007 and
2006, respectively, were excluded from the calculation of
diluted earnings per share because to include them would have
been antidilutive.
A reconciliation of net earnings and average number of shares
for each of the three fiscal years ended December 28, 2008
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Net earnings
|
|
$
|
306,766
|
|
|
|
306,766
|
|
|
|
333,003
|
|
|
|
333,003
|
|
|
|
230,055
|
|
|
|
230,055
|
|
Interest expense on contingent convertible debentures due 2021,
net of tax
|
|
|
|
|
|
|
4,238
|
|
|
|
|
|
|
|
4,248
|
|
|
|
|
|
|
|
4,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
306,766
|
|
|
|
311,004
|
|
|
|
333,003
|
|
|
|
337,251
|
|
|
|
230,055
|
|
|
|
234,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
|
140,877
|
|
|
|
140,877
|
|
|
|
156,054
|
|
|
|
156,054
|
|
|
|
167,100
|
|
|
|
167,100
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible debentures due 2021
|
|
|
|
|
|
|
11,566
|
|
|
|
|
|
|
|
11,568
|
|
|
|
|
|
|
|
11,574
|
|
Options and warrants
|
|
|
|
|
|
|
2,787
|
|
|
|
|
|
|
|
3,583
|
|
|
|
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent shares
|
|
|
140,877
|
|
|
|
155,230
|
|
|
|
156,054
|
|
|
|
171,205
|
|
|
|
167,100
|
|
|
|
181,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
$
|
2.18
|
|
|
|
2.00
|
|
|
|
2.13
|
|
|
|
1.97
|
|
|
|
1.38
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net earnings per share calculations for each of the three
years ended December 28, 2008 include adjustments to add
back to earnings the interest expense, net of tax, incurred on
the Companys senior convertible debentures due 2021, as
well as to add back to outstanding shares the amount of shares
potentially issuable under the contingent conversion feature of
these debentures. See note 7 for further information on the
contingent conversion feature.
Certain warrants containing a put feature that could be settled
in cash or common stock were required to be accounted for as a
liability at fair value. These warrants were repurchased by the
Company in May of
50
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
2007. Prior to their repurchase, the Company was required to
assess if these warrants, classified as a liability, had a more
dilutive impact on earnings per share when treated as an equity
contract. For the years ended December 30, 2007 and
December 31, 2006, the warrants had a more dilutive impact
on earnings per share assuming they were treated as a liability
and no adjustments to net earnings or equivalent shares was
required.
|
|
(2)
|
Other
Comprehensive Earnings
|
The Companys other comprehensive earnings (loss) for the
years 2008, 2007 and 2006 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Foreign currency translation adjustments
|
|
$
|
(33,555
|
)
|
|
|
35,888
|
|
|
|
26,429
|
|
Changes in value of available-for-sale securities, net of tax
|
|
|
(3,037
|
)
|
|
|
221
|
|
|
|
(2,497
|
)
|
Gain (loss) on cash flow hedging activities, net of tax
|
|
|
73,184
|
|
|
|
(15,851
|
)
|
|
|
(7,412
|
)
|
Change in unrecognized pension and postretirement amounts, net
of tax
|
|
|
(52,582
|
)
|
|
|
27,393
|
|
|
|
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
1,991
|
|
Reclassifications to earnings, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses on cash flow hedging activities
|
|
|
1,409
|
|
|
|
6,887
|
|
|
|
1,448
|
|
(Gain) loss on available-for-sale securities
|
|
|
897
|
|
|
|
(664
|
)
|
|
|
2,629
|
|
Amortization of unrecognized pension and postretirement amounts
|
|
|
1,002
|
|
|
|
2,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$
|
(12,682
|
)
|
|
|
55,973
|
|
|
|
22,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The related tax benefit (expense) of other comprehensive
earnings items was $16,022, $(16,064), and $273 for the years
2008, 2007 and 2006, respectively. Income taxes related to
reclassification adjustments from other comprehensive earnings
of $763, $1,412 and $85 in 2008, 2007 and 2006, respectively,
were included in these amounts.
In the first quarter of 2007, in accordance with
SFAS No. 158, the Company changed its measurement date
for certain of its defined benefit pension plans and its
postretirement plan from September 30 to the Companys
fiscal year-end date. As a result of this change, the assets and
liabilities of these plans were remeasured as of
December 31, 2006, the 2006 fiscal year-end date of the
Company. This remeasurement resulted in an adjustment to
accumulated other comprehensive earnings of $7,779 net of
taxes of $4,765, during the first quarter of 2007.
At December 31, 2006, the Company adopted the recognition
provisions of SFAS 158, which required the Company to
recognize the funded status of defined benefit pension and
postretirement plans as an asset or liability in its statement
of financial position and to recognize changes in that funded
status in the year in which the changes occur through
comprehensive income. The adoption of this statement resulted in
an adjustment of $(26,750), net of taxes of $12,645, to
accumulated other comprehensive income at December 31, 2006.
51
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Components of accumulated other comprehensive earnings at
December 28, 2008 and December 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Foreign currency translation adjustments
|
|
$
|
71,317
|
|
|
|
104,872
|
|
Changes in value of available-for-sale securities, net of tax
|
|
|
(651
|
)
|
|
|
1,489
|
|
Gain (loss) on cash flow hedging activities, net of tax
|
|
|
63,513
|
|
|
|
(11,080
|
)
|
Unrecognized pension and postretirement amounts, net of tax
|
|
|
(71,923
|
)
|
|
|
(20,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,256
|
|
|
|
74,938
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Land and improvements
|
|
$
|
6,578
|
|
|
|
6,940
|
|
Buildings and improvements
|
|
|
195,520
|
|
|
|
192,928
|
|
Machinery and equipment
|
|
|
358,529
|
|
|
|
344,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,627
|
|
|
|
544,835
|
|
Less accumulated depreciation
|
|
|
403,082
|
|
|
|
401,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,545
|
|
|
|
143,563
|
|
Tools, dies and molds, net of depreciation
|
|
|
54,162
|
|
|
|
44,397
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,707
|
|
|
|
187,960
|
|
|
|
|
|
|
|
|
|
|
Expenditures for maintenance and repairs which do not materially
extend the life of the assets are charged to operations.
|
|
(4)
|
Goodwill
and Intangibles
|
Goodwill and certain intangible assets relating to rights
obtained in the Companys acquisition of Milton Bradley in
1984 and Tonka in 1991 are not amortized. These rights were
determined to have indefinite lives and total approximately
$75,700. The Companys other intangible assets are
amortized over their remaining useful lives, and accumulated
amortization of these other intangibles is reflected in other
intangibles, net in the accompanying consolidated balance sheets.
The Company performs an annual impairment test on goodwill and
intangible assets with indefinite lives. This annual impairment
test is performed in the fourth quarter of the Companys
fiscal year. In addition, if an event occurs or circumstances
change that indicate that the carrying value may not be
recoverable, the Company will perform an interim impairment test
at that time. For the three fiscal years ended December 28,
2008, no such events occurred. The Company completed its annual
impairment tests in the fourth quarters of 2008, 2007 and 2006
and had no impairment charges.
A portion of the Companys goodwill and other intangible
assets reside in the Corporate segment of the business. For
purposes of testing pursuant to Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, these assets are allocated to the
reporting units within the Companys operating segments. In
2008 the Company reorganized the reporting structure of its
operating segments (see note 16). The Company has adjusted
its prior year information to reflect the current reporting
structure and reallocated
52
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Corporate segment amounts. Changes in carrying amount of
goodwill, by operating segment for the years ended
December 28, 2008 and December 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
|
International
|
|
|
Total
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2007
|
|
$
|
293,891
|
|
|
|
177,286
|
|
|
|
471,177
|
|
Goodwill acquired
|
|
|
6,605
|
|
|
|
2,217
|
|
|
|
8,822
|
|
Foreign exchange translation
|
|
|
|
|
|
|
(5,502
|
)
|
|
|
(5,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2008
|
|
$
|
300,496
|
|
|
|
174,001
|
|
|
|
474,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
293,891
|
|
|
|
176,047
|
|
|
|
469,938
|
|
Foreign exchange translation
|
|
|
|
|
|
|
1,239
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2007
|
|
$
|
293,891
|
|
|
|
177,286
|
|
|
|
471,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2008 the Company acquired Cranium, Inc.
(Cranium), a developer and marketer of
childrens and adult board games, in order to supplement
its existing game portfolio for a total cost of approximately
$68,000. Based on the allocation of the purchase price, property
rights related to acquired product lines of approximately
$68,500 were recorded as intangible assets in the acquisition.
These property rights are being amortized over a fifteen year
estimated useful life. Goodwill of $8,822 was also recorded as a
result of the transaction. The consolidated statement of
operations of the Company for 2008 includes the operations of
Cranium from the closing date of January 25, 2008.
A summary of the Companys other intangibles, net at
December 28, 2008 and December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Acquired product rights
|
|
$
|
1,080,628
|
|
|
|
925,092
|
|
Licensed rights of entertainment properties
|
|
|
211,555
|
|
|
|
211,555
|
|
Accumulated amortization
|
|
|
(799,509
|
)
|
|
|
(726,153
|
)
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets
|
|
|
492,674
|
|
|
|
410,494
|
|
Product rights with indefinite lives
|
|
|
75,738
|
|
|
|
75,738
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
568,412
|
|
|
|
486,232
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of fiscal 2008, the Company purchased all
of the intellectual property rights related to the TRIVIAL
PURSUIT brand from Horn Abbot Ltd. and Horn Abbot International
Limited (together the Seller) for a total cost of
approximately $80,800. Previous to this asset purchase, the
Company licensed these rights from the Seller. The cost was
recorded as property rights and included in other intangibles.
These property rights are being amortized over a fifteen year
estimated useful life.
In July 2007, with the exception of rights to
DUNGEONS & DRAGONS, the Company reacquired the
remaining digital gaming rights for its owned or controlled
properties held by Infogrames Entertainment SA (Infogrames). The
acquisition price of $19,000 included $18,000 in cash and $1,000
of non-cash consideration in the form of the return of preferred
stock held by the Company in a subsidiary of Infogrames. These
rights were previously held by Infogrames on an exclusive basis
as a result of a license agreement. The consideration to
reacquire these rights, which represents fair value, is included
as a component of other intangible assets in the consolidated
balance sheets and is being amortized over a period of
approximately 5 years.
53
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The Company will continue to incur amortization expense related
to the use of acquired and licensed rights to produce various
products. The amortization of these product rights will
fluctuate depending on related projected revenues during an
annual period, as well as rights reaching the end of their
useful lives. The Company currently estimates continuing
amortization expense related to the above intangible assets for
the next five years to be approximately:
|
|
|
|
|
2009
|
|
$
|
77,000
|
|
2010
|
|
|
52,300
|
|
2011
|
|
|
51,900
|
|
2012
|
|
|
52,700
|
|
2013
|
|
|
48,300
|
|
|
|
(5)
|
Financing
Arrangements
|
Short-Term
Borrowings
At December 28, 2008, Hasbro had available an unsecured
committed line and unsecured uncommitted lines of credit from
various banks approximating $300,000 and $174,200, respectively.
A significant portion of the short-term borrowings outstanding
at the end of 2008, and all of the short-term borrowings
outstanding at the end of 2007, represent borrowings made under,
or supported by, these lines of credit. The weighted average
interest rates of the outstanding borrowings as of
December 28, 2008 and December 30, 2007 were 10.7% and
5.5%, respectively. The Company had no borrowings outstanding
under its committed line of credit at December 28, 2008.
During 2008, Hasbros working capital needs were fulfilled
by cash generated from operations, borrowings under lines of
credit, and the Companys accounts receivable
securitization program. Borrowings under the lines of credit
were on terms and at interest rates generally extended to
companies of comparable creditworthiness.
The unsecured committed line (the Agreement)
provides the Company with a $300,000 committed borrowing
facility through June 2011. The Company has the ability to
request increases in the committed facility in additional
increments of at least $50,000, subject to lender agreement, up
to a total committed facility of $500,000. The Agreement
contains certain financial covenants setting forth leverage and
coverage requirements, and certain other limitations typical of
an investment grade facility, including with respect to liens,
mergers and incurrence of indebtedness. The Company was in
compliance with all covenants as of and for the year ended
December 28, 2008.
The Company pays a commitment fee (0.10% as of December 28,
2008) based on the unused portion of the facility and
interest equal to LIBOR or Prime plus a spread on borrowings
under the facility. The commitment fee and the amount of the
spread to LIBOR or Prime both vary based on the Companys
long-term debt ratings and the Companys leverage. At
December 28, 2008, the interest rate under the facility was
equal to LIBOR plus 0.50% or Prime.
Securitization
The Company is party to a receivable securitization program
whereby the Company sells, on an ongoing basis, substantially
all of its U.S. trade accounts receivable to a
bankruptcy-remote, special purpose subsidiary, Hasbro
Receivables Funding, LLC (HRF), which is wholly-owned and
consolidated by the Company. HRF will, subject to certain
conditions, sell, from time to time on a revolving basis, an
undivided fractional ownership interest in up to $250,000 of
eligible domestic receivables to various multi-party commercial
paper conduits supported by a committed liquidity facility.
During the period from the first day of the October fiscal month
through the last day of the following January fiscal month, this
limit is increased to $300,000. Under the terms of the
agreement, new receivables are added to the pool as collections
reduce previously held
54
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
receivables. The Company expects to service, administer, and
collect the receivables on behalf of HRF and the conduits. The
net proceeds of sale will be less than the face amount of
accounts receivable sold by an amount that approximates a
financing cost.
The receivables facility contains certain restrictions on the
Company and HRF that are customary for facilities of this type.
The commitments under the facility are subject to termination
prior to their term upon the occurrence of certain events,
including payment defaults, breach of covenants, breach of
representations or warranties, bankruptcy, and failure of the
receivables to satisfy certain performance criteria.
As of December 28, 2008 and December 30, 2007 the
utilization of the receivables facility was $250,000. As of
December 28, 2008 and December 30, 2007 the Company
had an additional $1,106 and $16,550, respectively, available to
sell under the facility. The transactions are accounted for as
sales under SFAS 140. During 2008, 2007 and 2006, the loss
on the sale of the receivables totaled $5,302, $7,982 and
$2,241, respectively, which is recorded in selling, distribution
and administration expenses in the accompanying consolidated
statements of operations. The discount on interests sold is
approximately equal to the interest rate paid by the conduits to
the holders of the commercial paper plus other fees. The
discount rate as of December 28, 2008 was approximately
3.00%.
Upon sale to the conduits, HRF continues to hold a subordinated
retained interest in the receivables. The subordinated interest
in receivables is recorded at fair value, which is determined
based on the present value of future expected cash flows
estimated using managements best estimates of credit
losses and discount rates commensurate with the risks involved.
Due to the short-term nature of trade receivables, the carrying
amount, less allowances, approximates fair value. Variations in
the credit and discount assumptions would not significantly
impact fair value.
Components of accrued liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Royalties
|
|
$
|
144,566
|
|
|
|
98,767
|
|
Advertising
|
|
|
92,852
|
|
|
|
100,883
|
|
Payroll and management incentives
|
|
|
65,171
|
|
|
|
78,809
|
|
Other
|
|
|
305,264
|
|
|
|
277,461
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
607,853
|
|
|
|
555,920
|
|
|
|
|
|
|
|
|
|
|
55
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
6.15% Notes Due 2008
|
|
$
|
|
|
|
|
135,092
|
|
6.30% Notes Due 2017
|
|
|
350,000
|
|
|
|
350,000
|
|
2.75% Convertible Debentures Due 2021
|
|
|
249,828
|
|
|
|
249,828
|
|
6.60% Debentures Due 2028
|
|
|
109,895
|
|
|
|
109,895
|
|
|
|
|
|
|
|
|
|
|
Total principal amount of long-term debt
|
|
|
709,723
|
|
|
|
844,815
|
|
Fair value adjustment related to interest rate swaps
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
709,723
|
|
|
|
845,071
|
|
Less current portion
|
|
|
|
|
|
|
135,348
|
|
|
|
|
|
|
|
|
|
|
Long-term debt excluding current portion
|
|
$
|
709,723
|
|
|
|
709,723
|
|
|
|
|
|
|
|
|
|
|
At December 28, 2008, as detailed above, all contractual
maturities of long-term debt occur subsequent to 2013.
At December 28, 2008, the fair values of the
6.30% Notes, the 6.60% Notes and the
2.75% Debentures were approximately $335,000, $100,300 and
$334,200, respectively.
In 2008 and 2006 the Company repaid $135,092 of 6.15% notes
due in July 2008 and $32,743 of 8.5% notes due in March
2006, respectively.
In September 2007 the Company issued $350,000 of notes that are
due in 2017 (the Notes). The Notes bear interest at
a rate of 6.30%, which may be adjusted upward in the event that
the Companys credit rating from Moodys Investor
Services, Inc., Standard & Poors Ratings
Services or Fitch Ratings is decreased two levels below the
Companys credit ratings on the date of issuance of the
Notes. From the date of issuance through December 28, 2008,
the Companys ratings from Moodys Investor Services,
Inc., Standard & Poors Ratings Services and
Fitch Ratings were BBB, Baa2 and BBB, respectively. The interest
rate adjustment is dependent on the degree of decrease of the
Companys ratings and could range from 0.25% to a maximum
of 2%. The Company may redeem the Notes at its option at the
greater of the principal amount of the Notes or the present
value of the remaining scheduled payments discounted using the
effective interest rate on applicable U.S. Treasury bills
at the time of repurchase.
The Company currently has $249,828 outstanding in principal
amount of contingent convertible debentures due 2021. These
debentures bear interest at 2.75%, which could be subject to an
upward adjustment depending on the price of the Companys
common stock. If the closing price of the Companys common
stock exceeds $23.76 for at least 20 trading days, within the 30
consecutive trading day period ending on the last trading day of
the calendar quarter, the holders have the right to convert the
notes to shares of the Companys common stock at the
initial conversion price of $21.60 in the next calendar quarter.
At December 28, 2008, this contingent conversion feature
was met and the debentures are convertible through
March 31, 2009, at which time the requirements of the
contingent conversion feature will be reevaluated. In addition,
if the closing price of the Companys common stock exceeds
$27.00 for at least 20 trading days in any thirty day period,
the Company has the right to call the debentures by giving
notice to the holders of the debentures. During a prescribed
notice period, the holders of the debentures have the right to
convert their debentures in accordance with the conversion terms
described above. At certain times during the year, based on the
Companys common stock price, the Company had the right to
call the debentures under this provision. As of
December 28, 2008, the Company did not have the right to
call the debentures. The holders of these
56
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
debentures may also put the notes back to Hasbro in December
2011 and December 2016. At these times, the purchase price may
be paid in cash, shares of common stock or a combination of the
two, at the discretion of the Company.
Income taxes attributable to earnings before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
68,514
|
|
|
|
42,613
|
|
|
|
40,875
|
|
State and local
|
|
|
251
|
|
|
|
5,497
|
|
|
|
3,203
|
|
International
|
|
|
40,530
|
|
|
|
43,691
|
|
|
|
42,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,295
|
|
|
|
91,801
|
|
|
|
86,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
22,917
|
|
|
|
33,707
|
|
|
|
24,912
|
|
State and local
|
|
|
1,964
|
|
|
|
2,889
|
|
|
|
2,135
|
|
International
|
|
|
113
|
|
|
|
982
|
|
|
|
(2,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,994
|
|
|
|
37,578
|
|
|
|
24,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,289
|
|
|
|
129,379
|
|
|
|
111,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain income tax (benefits) expenses, not reflected in income
taxes in the statements of operations totaled $(29,287) in 2008,
$2,542 in 2007, and $(27,876) in 2006. These income tax
(benefits) expenses relate primarily to pension amounts recorded
in AOCE and stock options. In 2008, 2007, and 2006, the deferred
tax portion of the total (benefit) expense was $(26,555),
$20,163, and $(12,917), respectively.
A reconciliation of the statutory United States federal income
tax rate to Hasbros effective income tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.2
|
|
Investment of foreign earnings in U.S.
|
|
|
3.5
|
|
|
|
4.4
|
|
|
|
|
|
Tax on international earnings
|
|
|
(7.9
|
)
|
|
|
(10.9
|
)
|
|
|
(9.7
|
)
|
Fair value adjustment of liabilities potentially settleable in
common stock
|
|
|
|
|
|
|
3.4
|
|
|
|
3.3
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Exam settlements and statute expirations
|
|
|
(0.8
|
)
|
|
|
(6.5
|
)
|
|
|
1.5
|
|
Other, net
|
|
|
(0.4
|
)
|
|
|
1.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.4
|
%
|
|
|
28.0
|
%
|
|
|
32.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008 and 2007, the Company designated $60,000 and $90,000
of the respective current year international net earnings that
will not be indefinitely reinvested outside of the U.S. The
incremental income tax on this amount, representing the
difference between the U.S. federal income tax rate and the
income tax rates in the applicable international jurisdictions,
is a component of deferred income tax expense.
57
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The components of earnings before income taxes, determined by
tax jurisdiction, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
208,125
|
|
|
|
165,274
|
|
|
|
113,761
|
|
International
|
|
|
232,930
|
|
|
|
297,108
|
|
|
|
227,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441,055
|
|
|
|
462,382
|
|
|
|
341,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred income tax expense arise from various
temporary differences and relate to items included in the
statements of operations. The tax effects of temporary
differences that give rise to significant portions of the
deferred tax assets and liabilities at December 28, 2008
and December 30, 2007 are:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
16,764
|
|
|
|
20,524
|
|
Inventories
|
|
|
20,226
|
|
|
|
24,608
|
|
Losses and tax credit carryforwards
|
|
|
34,438
|
|
|
|
39,094
|
|
Operating expenses
|
|
|
42,947
|
|
|
|
42,759
|
|
Pension
|
|
|
34,065
|
|
|
|
9,990
|
|
Other compensation
|
|
|
31,331
|
|
|
|
24,477
|
|
Postretirement benefits
|
|
|
12,647
|
|
|
|
13,507
|
|
Other
|
|
|
39,147
|
|
|
|
37,274
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
231,565
|
|
|
|
212,233
|
|
Valuation allowance
|
|
|
(11,755
|
)
|
|
|
(36,254
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
219,810
|
|
|
|
175,979
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
|
47,608
|
|
|
|
40,185
|
|
International earnings not indefinitely reinvested
|
|
|
24,641
|
|
|
|
20,422
|
|
Depreciation and amortization of long-lived assets
|
|
|
40,509
|
|
|
|
15,833
|
|
Other
|
|
|
11,035
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
123,793
|
|
|
|
78,848
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
96,017
|
|
|
|
97,131
|
|
|
|
|
|
|
|
|
|
|
Hasbro has a valuation allowance for deferred tax assets at
December 28, 2008 of $11,755, which is a decrease of
$24,499 from $36,254 at December 30, 2007. The valuation
allowance pertains to United States and International loss
carryforwards, some of which have no expiration and others that
would expire beginning in 2009. The decrease in the valuation
allowance is primarily attributable to the generation of
sufficient capital gains in 2008 to utilize prior year capital
losses.
Based on Hasbros history of taxable income and the
anticipation of sufficient taxable income in years when the
temporary differences are expected to become tax deductions, the
Company believes that it will realize the benefit of the
deferred tax assets, net of the existing valuation allowance.
Deferred income taxes of $53,285 and $53,040 at the end of 2008
and 2007, respectively, are included as a component of prepaid
expenses and other current assets, and $53,031 and $45,855,
respectively, are included as a component of other assets. At
the same dates, deferred income taxes of $4,245 and $81,
respectively, are
58
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
included as a component of accrued liabilities, and $6,054 and
$1,683, respectively, are included as a component of other
liabilities.
On January 1, 2007, the Company adopted FIN 48, which
applies to all tax positions accounted for under Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes. FIN 48 prescribes a two step
process for the measurement of uncertain tax positions that have
been taken or are expected to be taken in a tax return. The
first step is a determination of whether the tax position should
be recognized in the financial statements. The second step
determines the measurement of the tax position. FIN 48 also
provides guidance on derecognition of such tax positions,
classification, potential interest and penalties, accounting in
interim periods and disclosure. The adoption of FIN 48
resulted in a $88,798 decrease in current liabilities, a $85,773
increase in long-term liabilities, a $5,333 increase to the
long-term deferred tax assets and a $8,358 increase to retained
earnings.
A reconciliation of unrecognized tax benefits, excluding
potential interest and penalties, for the fiscal years ended
December 28, 2008 and December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
58,855
|
|
|
|
72,878
|
|
Gross increases in prior period tax positions
|
|
|
803
|
|
|
|
1,980
|
|
Gross decreases in prior period tax positions
|
|
|
(2,612
|
)
|
|
|
(889
|
)
|
Gross increases in current period tax positions
|
|
|
25,101
|
|
|
|
12,840
|
|
Decreases related to settlements with tax authorities
|
|
|
(1,229
|
)
|
|
|
(633
|
)
|
Decreases from the expiration of statute of limitations
|
|
|
(1,462
|
)
|
|
|
(27,321
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
79,456
|
|
|
|
58,855
|
|
|
|
|
|
|
|
|
|
|
If the $79,456 is recognized, approximately $54,300 would
decrease the effective tax rate in the period in which each of
the benefits is recognized. The remaining amount would be offset
by the reversal of related deferred tax assets.
During 2008 and 2007 the Company recognized $3,357 and $4,628,
respectively, of potential interest and penalties, which are
included as a component of income tax in the accompanying
statement of operations. At December 28, 2008 and
December 30, 2007, the Company had accrued potential
interest and penalties of $13,660 and $12,020, respectively.
The Company and its subsidiaries file income tax returns in the
United States and various state and international jurisdictions.
In the normal course of business, the Company is regularly
audited by U.S. federal, state and local and international
tax authorities in various tax jurisdictions. The Company is no
longer subject to U.S. federal income tax examinations for
years before 2004. With few exceptions, the Company is no longer
subject to U.S. state or local and
non-U.S. income
tax examinations by tax authorities in its major jurisdictions
for years before 2003.
The U.S. Internal Revenue Service has commenced an
examination related to the 2004 and 2005 U.S. federal
income tax returns. The Company is also under income tax
examination in Mexico and in several other state and foreign
jurisdictions. The ultimate resolution of the U.S. and
Mexican examinations, including matters that may be resolved
within the next twelve months, is not yet determinable. In
connection with the Mexican tax examinations for the years 2000
to 2003, the Company has received tax assessments, which include
interest, penalties and inflation updates, related to transfer
pricing which the Company is vigorously defending. In order to
continue the process of defending its position, the Company was
required to guarantee the amount of the assessments, as is usual
and customary in Mexico with respect to these matters.
Accordingly, as of December 28, 2008, bonds totaling
$67,696 (at year-end 2008 exchange rates) have been provided to
the
59
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Mexican government related to the 2000 to 2002 assessments,
allowing the Company to defend its positions. The Company will
be required to either post an additional bond or pay a deposit
of $25,688 (at year-end 2008 exchange rates) related to the 2003
assessment. The Company expects to be successful in sustaining
its position with respect to these assessments as well as
similar positions that may be taken by the Mexican tax
authorities for periods subsequent to 2003.
Upon the settlements of other examinations in various tax
jurisdictions and the expiration of several statutes of
limitation, the Company believes that it is reasonably possible
that the related unrecognized tax benefits and accrued interest
may decrease income tax expense by up to approximately $3,000 in
the next 12 months.
The cumulative amount of undistributed earnings of Hasbros
international subsidiaries held for reinvestment is
approximately $718,000 at December 28, 2008. In the event
that all international undistributed earnings were remitted to
the United States, the amount of incremental taxes would be
approximately $167,000.
(9) Capital
Stock
Preference
Share Purchase Rights
Hasbro maintains a Preference Share Purchase Rights Plan (the
Rights Plan). Under the terms of the Rights Plan,
each share of common stock is accompanied by a Preference Share
Purchase Right (Right). Each Right is only
exercisable under certain circumstances and, until exercisable,
the Rights are not transferable apart from Hasbros common
stock. When exercisable, each Right will entitle its holder to
purchase until June 30, 2009, in certain merger or other
business combination or recapitalization transactions, at the
Rights then current exercise price, a number of the
acquiring companys or Hasbros, as the case may be,
common shares having a market value at that time of twice the
Rights exercise price. Under certain circumstances, the
Company may substitute cash, other assets, equity securities or
debt securities for the common stock. At the option of the Board
of Directors of Hasbro (the Board), the rightholder
may, under certain circumstances, receive shares of
Hasbros common stock in exchange for Rights.
Prior to the acquisition by a person or group of beneficial
ownership of a certain percentage of Hasbros common stock,
the Rights are redeemable for $0.01 per Right. The Rights Plan
contains certain exceptions with respect to the Hassenfeld
family and related entities.
Common
Stock
In February 2008 the Companys Board of Directors
authorized the repurchase of up to $500,000 in common stock
after three previous authorizations dated May 2005, July 2006
and August 2007 with a cumulative authorized repurchase amount
of $1,200,000 were fully utilized. Purchases of the
Companys common stock may be made from time to time,
subject to market conditions, and may be made in the open market
or through privately negotiated transactions. The Company has no
obligation to repurchase shares under the authorization and the
timing, actual number, and the value of the shares which are
repurchased will depend on a number of factors, including the
price of the Companys common stock. This authorization
replaced all prior authorizations. In 2008, the Company
repurchased 11,736 shares at an average price of $30.44.
The total cost of these repurchases, including transaction
costs, was $357,589. At December 28, 2008, $252,364
remained under this authorization.
|
|
(10)
|
Fair
Value of Financial Instruments
|
On December 31, 2007, the first day of fiscal 2008, the
Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value Measurements
(SFAS No. 157), for financial assets and
liabilities and No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
60
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
(SFAS No. 159). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements.
The SFAS No. 157 fair value hierarchy consists of
three levels: Level 1 fair values are valuations based on
quoted market prices in active markets for identical assets or
liabilities that the entity has the ability to access;
Level 2 fair values are those valuations based on quoted
prices for similar assets or liabilities, quoted prices in
markets that are not active, or other inputs that are observable
or can be corroborated by observable data for substantially the
full term of the assets or liabilities; and Level 3 fair
values are valuations based on inputs that are supported by
little or no market activity and that are significant to the
fair value of the assets or liabilities.
SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value
and establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose
different measurement attributes for similar assets and
liabilities. The Company did not elect the fair value option for
any assets or liabilities in 2008. The adoption of
SFAS No. 157 and SFAS No. 159 did not have
an impact on the Companys consolidated balance sheet or
statement of operations. SFAS No. 157 is not required
to be adopted for certain non-financial assets and liabilities
until the first day of fiscal 2009. The Companys assets
for which SFAS No. 157 was not adopted include the
Companys goodwill and property rights, including the
property rights recorded in connection with the Companys
acquisition of Cranium, Inc. and TRIVIAL PURSUIT (see
note 4).
At December 28, 2008, the Company had the following assets
measured at fair value in its consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
December 28, 2008 Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available-for-sale securities
|
|
$
|
4,634
|
|
|
|
43
|
|
|
|
|
|
|
|
4,591
|
|
Derivatives
|
|
|
72,053
|
|
|
|
|
|
|
|
72,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,687
|
|
|
|
43
|
|
|
|
72,053
|
|
|
|
4,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a portion of the Companys available-for-sale
securities, the Company is able to obtain quoted prices from
stock exchanges to measure the fair value of these securities.
The remaining available-for-sale securities consist of warrants
to purchase common stock. 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 Companys 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. The Companys derivatives are measured using
inputs that are observable indirectly through corroboration with
readily available market data, in this case foreign exchange
rates. The Companys derivatives consist of foreign
currency forward contracts. The Company uses current forward
rates of the respective foreign currencies to measure the fair
value of these contracts. There were no changes in these
valuation techniques during 2008.
61
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The following is reconciliation of the beginning and ending
balances of the fair value measurements of the Companys
available-for-sale securities that use significant unobservable
inputs (Level 3):
|
|
|
|
|
Balance at December 30, 2007
|
|
$
|
8,580
|
|
Loss included in other comprehensive earnings
|
|
|
(3,989
|
)
|
|
|
|
|
|
Balance at December 28, 2008
|
|
$
|
4,591
|
|
|
|
|
|
|
|
|
(11)
|
Stock
Options, Other Stock Awards and Warrants
|
Hasbro has reserved 16,147 shares of its common stock for
issuance upon exercise of options and the grant of 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 fair market value 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.
Certain of the plans permit the granting of awards in the form
of stock, stock appreciation rights, stock awards and cash
awards in addition to stock options. 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 on occasion will issue restricted stock and grant
restricted stock units to certain key employees. In 2008, 2007,
and 2006 the Company issued restricted stock and restricted
stock units of 60, 12 and 20 shares, respectively. These
shares or units are nontransferable and subject to forfeiture
for periods prescribed by the Company. These awards are valued
at the market value at the date of grant and are subsequently
amortized over the periods during which the restrictions lapse,
generally 3 years. Compensation expense recognized relating
to the outstanding restricted stock and restricted stock units
was $661, $183, and $158 in fiscal 2008, 2007, and 2006,
respectively. At December 28, 2008, the amount of total
unrecognized compensation cost related to restricted stock is
$1,840 and the weighted average period over which this will be
expensed is 28 months.
In 2008, 2007, and 2006, as part of its annual equity grant to
executive officers and certain other employees, the Compensation
Committee of the Companys Board of Directors approved the
issuance of contingent stock performance awards (the Stock
Performance Awards). These awards provide the recipients
with the ability to earn shares of the Companys common
stock based on the Companys achievement of stated
cumulative diluted earnings per share and cumulative net revenue
targets over the three fiscal years ended December 2010 for the
2008 award, over the three fiscal years ended December 2009 for
the 2007 award, and over a ten quarter period beginning
July 3, 2006 and ending December 2008 for the 2006 award.
Each Stock Performance Award has a target number of shares of
common stock associated with such award which may be earned by
the recipient if the Company achieves the stated diluted
earnings per share and revenue targets. The ultimate amount of
the award may vary, depending on actual results, from 0% to 125%
of the target number of shares. The Compensation Committee of
the Companys Board of Directors has discretionary power to
reduce the amount of the award regardless of whether the stated
targets are met.
62
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Information with respect to Stock Performance Awards for 2008,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding at beginning of year
|
|
|
1,194
|
|
|
|
738
|
|
|
|
|
|
Granted
|
|
|
696
|
|
|
|
537
|
|
|
|
762
|
|
Forfeited
|
|
|
(60
|
)
|
|
|
(81
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,830
|
|
|
|
1,194
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
27.10
|
|
|
|
28.74
|
|
|
|
19.00
|
|
Forfeited
|
|
$
|
24.31
|
|
|
|
22.89
|
|
|
|
18.82
|
|
Outstanding at end of year
|
|
$
|
24.15
|
|
|
|
23.12
|
|
|
|
19.01
|
|
Stock Performance Awards granted during 2008 include
100 shares related to the 2006 award, reflecting an
increase in the ultimate amount of the award to be issued based
on the Companys actual results during the performance
period. These shares are excluded from the calculation of the
weighted average grant-date fair value of Stock Performance
Awards granted during 2008.
During 2008, 2007 and 2006, the Company recognized $17,422,
$11,122 and $2,390, respectively, of expense relating to these
awards. If minimum targets, as detailed under the award, are not
met, no additional compensation cost will be recognized and any
previously recognized compensation cost will be reversed. These
awards were valued at the market value at the dates of grant and
are being amortized over the three fiscal years ending December
2010, over the three fiscal years ending December 2009 and over
the 10 quarter period from July 3, 2006 through December
2008 for the 2008, 2007 and 2006 awards, respectively. At
December 28, 2008, the amount of total unrecognized
compensation cost related to these awards is approximately
$16,600 and the weighted average period over which this will be
expensed is 19.56 months.
Total compensation expense related to stock options and the
stock performance awards for the years ended December 28,
2008, December 30, 2007 and December 31, 2006 was
$33,300, $28,229 and $21,684, respectively, and was recorded as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of sales
|
|
$
|
471
|
|
|
|
374
|
|
|
|
306
|
|
Research and product development
|
|
|
2,551
|
|
|
|
1,937
|
|
|
|
1,436
|
|
Selling, distribution and administration
|
|
|
30,278
|
|
|
|
25,918
|
|
|
|
19,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,300
|
|
|
|
28,229
|
|
|
|
21,684
|
|
Income tax benefit
|
|
|
11,794
|
|
|
|
9,359
|
|
|
|
7,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,506
|
|
|
|
18,870
|
|
|
|
14,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Information with respect to stock options for the three years
ended December 28, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding at beginning of year
|
|
|
14,495
|
|
|
|
17,309
|
|
|
|
20,443
|
|
Granted
|
|
|
3,177
|
|
|
|
2,243
|
|
|
|
3,126
|
|
Exercised
|
|
|
(5,753
|
)
|
|
|
(4,586
|
)
|
|
|
(5,490
|
)
|
Expired or canceled
|
|
|
(268
|
)
|
|
|
(471
|
)
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
11,651
|
|
|
|
14,495
|
|
|
|
17,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
6,345
|
|
|
|
9,731
|
|
|
|
11,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
27.10
|
|
|
|
32.42
|
|
|
|
18.83
|
|
Exercised
|
|
$
|
21.02
|
|
|
|
18.04
|
|
|
|
16.00
|
|
Expired or canceled
|
|
$
|
27.49
|
|
|
|
26.60
|
|
|
|
24.38
|
|
Outstanding at end of year
|
|
$
|
23.76
|
|
|
|
22.01
|
|
|
|
19.73
|
|
Exercisable at end of year
|
|
$
|
21.01
|
|
|
|
20.48
|
|
|
|
19.94
|
|
With respect to the 11,651 outstanding options and 6,345 options
exercisable at December 28, 2008, the weighted average
remaining contractual life of these options was 4.79 years
and 4.03 years, respectively. The aggregate intrinsic value
of the options outstanding and exercisable at December 28,
2008 was $70,437 and $55,343, respectively.
The Company uses the Black-Scholes valuation model in
determining fair value of stock options. The weighted average
fair value of options granted in fiscal 2008, 2007 and 2006 was
$4.46, $7.39 and $4.26, respectively. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions used for grants in the fiscal years 2008,
2007, and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
2.71
|
%
|
|
|
4.79
|
%
|
|
|
4.98
|
%
|
Expected dividend yield
|
|
|
2.95
|
%
|
|
|
1.97
|
%
|
|
|
2.55
|
%
|
Expected volatility
|
|
|
22
|
%
|
|
|
22
|
%
|
|
|
24
|
%
|
Expected option life
|
|
|
5 years
|
|
|
|
5 years
|
|
|
|
5 years
|
|
The intrinsic values, which represent the difference between the
fair market value on the date of exercise and the exercise price
of the option, of the options exercised in fiscal 2008, 2007 and
2006 were $83,747, $54,629 and $46,684, respectively.
At December 28, 2008, the amount of total unrecognized
compensation cost related to stock options was $15,220 and the
weighted average period over which this will be expensed is
20.34 months.
In 2008, 2007 and 2006, the Company granted 36, 31 and
52 shares of common stock, respectively, to its
non-employee members of its Board of Directors. Of these shares,
the receipt of 30 shares from the 2008 grant,
19 shares from the 2007 grant and 43 shares from the
2006 grant have been deferred to the date upon which the
respective director ceases to be a member of the Companys
Board of Directors. These awards were valued at the market value
at the date of grant and vested upon grant. In connection with
these grants, compensation cost of $1,260 was recorded in 2008,
and $990 was recorded in both 2007 and 2006.
In 2007 certain warrants previously issued by the Company
allowing for the purchase of 1,700 shares of the
Companys common stock, with a weighted average exercise
price of approximately $16.99, were
64
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
exercised. The holder of the warrants elected to settle the
warrants through a non-cash net share settlement, resulting in
the issuance of 779 shares. If the holder had not elected
net share settlement, the Company would have received cash
proceeds from the exercise totaling $28,888 and would have been
required to issue 1,700 shares.
In addition, during 2007 the Company exercised its call option
to repurchase warrants which allowed for the purchase of an
aggregate of 15,750 shares of the Companys common
stock. The Company had a warrant amendment agreement with
Lucasfilm Ltd. and Lucas Licensing Ltd. (together
Lucas) that provided the Company with a call option
through October 13, 2016 to purchase the warrants from
Lucas for a price to be paid at the Companys election of
either $200,000 in cash or the equivalent of $220,000 in shares
of the Companys common stock, such stock being valued at
the time of the exercise of the option. Also, the warrant
amendment agreement provided Lucas with a put option through
January 2008 to sell all of these warrants to the Company for a
price to be paid at the Companys election of either
$100,000 in cash or the equivalent of $110,000 in shares of the
Companys common stock, such stock being valued at the time
of the exercise of the option. In May 2007 the Company exercised
its call option to repurchase all of the outstanding warrants
for the Companys common stock held by Lucas and paid
$200,000 in cash and repurchased the warrants.
Prior to exercising the call option, the Company adjusted these
warrants to their fair value through earnings at the end of each
reporting period. During 2007 and 2006, the Company recorded
other expense of $44,370 and $31,770, respectively to adjust the
warrants to their fair value. These amounts are included in
other (income) expense, net in the consolidated statements of
operations. There was no tax benefit or expense associated with
these fair value adjustments.
|
|
(12)
|
Pension,
Postretirement and Postemployment Benefits
|
Pension
and Postretirement Benefits
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, (SFAS No. 158) which amends
Statements of Financial Accounting Standards No. 87, 88,
106 and 132R. Under SFAS No. 158, the Company is
required to recognize on its balance sheet actuarial gains and
losses and prior service costs that have not yet been included
in income as an adjustment of equity through other comprehensive
earnings with a corresponding adjustment to prepaid pension
expense or the accrued pension liability. In addition, within
two years of adoption, the measurement date for plan assets and
liabilities would be required to be the Companys fiscal
year-end.
In accordance with SFAS No. 158, effective
January 1, 2007, the Company elected to change the
measurement date of certain of its defined benefit pension plans
and the Companys other postretirement plan from September
30 to the Companys fiscal year-end date, which was
December 30, 2007. As a result of this election, the assets
and liabilities of these plans were remeasured as of
December 31, 2006. The remeasurement of the assets and
liabilities resulted in an increase in the projected benefit
obligation of $536 and an increase in the fair value of plan
assets of $10,872. The impact of this accounting change was a
reduction of retained earnings of $2,143, an increase to
accumulated other comprehensive earnings of $7,779, a decrease
in long-term accrued pension expense of $3,619, an increase in
prepaid pension expense of $5,482, and a decrease in long-term
deferred tax assets of $3,465.
Expense related to the Companys defined benefit and
defined contribution plans for 2008, 2007 and 2006 were
approximately $33,400, $25,900, and $31,100, respectively. Of
these amounts, $32,400, $13,400 and $15,400 related to defined
contribution plans in the United States and certain
international affiliates. The remainder of the expense relates
to defined benefit plans discussed below.
65
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
United States Plans
Substantially all United States employees are covered under at
least one of several non-contributory defined benefit pension
plans maintained by the Company. Benefits under the two major
plans which principally cover non-union employees, are based
primarily on salary and years of service. One of these major
plans is funded. Benefits under the remaining plans are based
primarily on fixed amounts for specified years of service. Of
these remaining plans, the plan covering union employees is also
funded.
In 2007, for the two major plans covering its non-union
employees, the Company froze benefits being accrued effective at
the end of December 2007. In connection with this, the Company
recognized a reduction of its projected benefit obligation as a
result of this curtailment of $18,499 and recorded a curtailment
loss of $908. The pension benefit was replaced by additional
employer contributions to the Companys defined
contribution plan beginning in 2008.
At December 28, 2008, the measurement date, the projected
benefit obligations of the funded plans were in excess of those
plans fair value of plan assets in the amount of $25,142
while the unfunded plans of the Company had an aggregate
accumulated and projected benefit obligation of $43,450. At
December 30, 2007, the fair value of the plan assets of the
funded plans were in excess of those plans projected
benefit obligations.
Hasbro also provides certain postretirement health care and life
insurance benefits to eligible employees who retire and have
either attained age 65 with 5 years of service or
age 55 with 10 years of service. The cost of providing
these benefits on behalf of employees who retired prior to 1993
is and will continue to be substantially borne by the Company.
The cost of providing benefits on behalf of substantially all
employees who retire after 1992 is borne by the employee. The
plan is not funded. As noted above, in 2007, the Company adopted
the measurement date provisions of SFAS No. 158.
66
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Reconciliations of the beginning and ending balances for the
years ended December 28, 2008 and December 30, 2007
for the projected benefit obligation and the fair value of plan
assets are included below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation beginning
|
|
$
|
288,045
|
|
|
|
308,133
|
|
|
|
33,726
|
|
|
|
37,463
|
|
Service cost
|
|
|
1,597
|
|
|
|
9,437
|
|
|
|
570
|
|
|
|
597
|
|
Interest cost
|
|
|
17,714
|
|
|
|
17,435
|
|
|
|
2,065
|
|
|
|
2,105
|
|
Actuarial loss (gain)
|
|
|
9,253
|
|
|
|
(7,901
|
)
|
|
|
(1,668
|
)
|
|
|
(4,100
|
)
|
Effect of curtailment
|
|
|
1,019
|
|
|
|
(18,499
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(16,385
|
)
|
|
|
(19,781
|
)
|
|
|
(2,110
|
)
|
|
|
(2,339
|
)
|
Expenses paid
|
|
|
(909
|
)
|
|
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation ending
|
|
$
|
300,334
|
|
|
|
288,045
|
|
|
|
32,583
|
|
|
|
33,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation ending
|
|
$
|
300,334
|
|
|
|
288,045
|
|
|
|
32,583
|
|
|
|
33,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning
|
|
$
|
283,478
|
|
|
|
270,926
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(37,000
|
)
|
|
|
30,556
|
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
2,558
|
|
|
|
2,556
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(16,385
|
)
|
|
|
(19,781
|
)
|
|
|
|
|
|
|
|
|
Expenses paid
|
|
|
(909
|
)
|
|
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets ending
|
|
$
|
231,742
|
|
|
|
283,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
(300,334
|
)
|
|
|
(288,045
|
)
|
|
|
(32,583
|
)
|
|
|
(33,726
|
)
|
Fair value of plan assets
|
|
|
231,742
|
|
|
|
283,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(68,592
|
)
|
|
|
(4,567
|
)
|
|
|
(32,583
|
)
|
|
|
(33,726
|
)
|
Unrecognized net loss
|
|
|
86,518
|
|
|
|
17,296
|
|
|
|
3,444
|
|
|
|
5,228
|
|
Unrecognized prior service cost
|
|
|
1,388
|
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
19,314
|
|
|
|
14,591
|
|
|
|
(29,139
|
)
|
|
|
(28,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
|
|
|
|
40,485
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
(14,431
|
)
|
|
|
(5,358
|
)
|
|
|
(2,400
|
)
|
|
|
(2,400
|
)
|
Other liabilities
|
|
|
(54,161
|
)
|
|
|
(39,694
|
)
|
|
|
(30,183
|
)
|
|
|
(31,326
|
)
|
Accumulated other comprehensive earnings
|
|
|
87,906
|
|
|
|
19,158
|
|
|
|
3,444
|
|
|
|
5,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
19,314
|
|
|
|
14,591
|
|
|
|
(29,139
|
)
|
|
|
(28,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2009, the Company expects amortization of unrecognized
net losses and unrecognized prior service cost related to its
defined benefit pension plans of $4,574 and $266, respectively,
to be included as a component of net periodic benefit cost. In
addition, the Company expects amortization of unrecognized net
losses related to its postretirement plan of $12 to be included
as a component of net periodic benefit cost.
67
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Assumptions used to determine the year-end benefit obligation
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average discount rate
|
|
|
6.20
|
%
|
|
|
6.34
|
%
|
Rate of future compensation increases
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Long-term rate of return on plan assets
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
Mortality table
|
|
|
RP-2000
|
|
|
|
RP-2000
|
|
The assets of the funded plans are managed by investment
advisors and consist of the following:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Large Cap Equity
|
|
|
4
|
%
|
|
|
5
|
%
|
Small Cap Equity
|
|
|
6
|
|
|
|
8
|
|
International Equity
|
|
|
7
|
|
|
|
14
|
|
Other Equity
|
|
|
9
|
|
|
|
17
|
|
Fixed Income
|
|
|
54
|
|
|
|
40
|
|
Total Return Fund
|
|
|
18
|
|
|
|
16
|
|
Cash
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Hasbros two major funded plans (the Plans) are
defined benefit pension plans intended to provide retirement
benefits to participants in accordance with the benefit
structure established by Hasbro, Inc. The Plans investment
managers, who exercise full investment discretion within
guidelines outlined in the Plans Investment Policy, are
charged with managing the assets with the care, skill, prudence
and diligence that a prudent investment professional in similar
circumstance would exercise. Investment practices, at a minimum,
must comply with the Employee Retirement Income Security Act
(ERISA) and any other applicable laws and regulations.
The Plans asset allocations are structured to meet a
long-term targeted total return consistent with the ongoing
nature of the Plans liabilities. The shared long-term
total return goal, presently 8.75%, includes income plus
realized and unrealized gains
and/or
losses on the Plans assets. Utilizing generally accepted
diversification techniques, the Plans assets, in aggregate
and at the individual portfolio level, are invested so that the
total portfolio risk exposure and risk-adjusted returns best
meet the Plans long-term obligations to employees. During
2007, the Company reevaluated its investment strategy and, as a
result, decided to change the asset allocation in order to more
closely align changes in the value of plan assets with changes
in the value of plan liabilities. This change in asset
allocation resulted in a transfer of assets into alternative
investment strategies designed to achieve a modest absolute
return in addition to the return on an underlying asset class
such as bond or equity indices. These alternative investment
strategies may use derivatives to gain market returns in an
efficient and timely manner; however, derivatives are not used
to leverage the portfolio beyond the market value of the
underlying assets. These alternative investment strategies are
included in other equity and fixed income asset categories at
December 28, 2008 and December 30, 2007. Plan asset
allocations are reviewed at least quarterly and rebalanced to
achieve target allocation among the asset categories when
necessary.
The Plans investment managers are provided specific
guidelines under which they are to invest the assets assigned to
them. In general, investment managers are expected to remain
fully invested in their asset class with further limitations of
risk as related to investments in a single security, portfolio
turnover and credit quality.
68
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
With the exception of the alternative investment strategies
mentioned above, the Plans Investment Policy restricts the
use of derivatives associated with leverage or speculation. In
addition, the Investment Policy also restricts investments in
securities issued by Hasbro, Inc. except through index-related
strategies (e.g. an S&P 500 Index Fund)
and/or
commingled funds. In addition, unless specifically approved by
the Investment Committee (which is comprised of members of
management, established by the Board to manage and control
pension plan assets), certain securities, strategies, and
investments are ineligible for inclusion within the Plans.
As noted above, in 2007, the Company adopted the measurement
date provision of SFAS 158 and, accordingly, for 2008 and
2007, the Plans assets and liabilities were measured at
December 28, 2008 and December 30, 2007, respectively.
For the fiscal year 2006, the Company measured its liabilities
and related assets at September 30. The discount rates used
in the pension calculation were also used for the postretirement
calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Components of Net Periodic Cost
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,597
|
|
|
|
9,437
|
|
|
|
10,188
|
|
Interest cost
|
|
|
17,714
|
|
|
|
17,435
|
|
|
|
16,809
|
|
Expected return on assets
|
|
|
(23,961
|
)
|
|
|
(23,064
|
)
|
|
|
(19,112
|
)
|
Amortization of prior service cost
|
|
|
282
|
|
|
|
634
|
|
|
|
596
|
|
Amortization of actuarial loss
|
|
|
993
|
|
|
|
1,768
|
|
|
|
3,399
|
|
Curtailment loss
|
|
|
1,213
|
|
|
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (benefit)
|
|
$
|
(2,162
|
)
|
|
|
7,118
|
|
|
|
11,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
570
|
|
|
|
597
|
|
|
|
684
|
|
Interest cost
|
|
|
2,065
|
|
|
|
2,105
|
|
|
|
2,047
|
|
Amortization of actuarial loss
|
|
|
115
|
|
|
|
364
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
2,750
|
|
|
|
3,066
|
|
|
|
3,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit cost of the
pension plan for each fiscal year follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average discount rate
|
|
|
6.34
|
%
|
|
|
5.83
|
%
|
|
|
5.50
|
%
|
Rate of future compensation increases
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Long-term rate of return on plan assets
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
Hasbro works with external benefit investment specialists to
assist in the development of the long-term rate of return
assumptions used to model and determine the overall asset
allocation. Forecast returns are based on the combination of
historical returns, current market conditions and a forecast for
the capital markets for the next 5-7 years. All asset class
assumptions are within certain bands around the long-term
historical averages. Correlations are based primarily on
historical return patterns.
69
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Expected benefit payments under the defined benefit pension
plans and expected gross benefit payments and subsidy receipts
under the postretirement benefit for the next five years
subsequent to 2008 and in the aggregate for the following five
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Subsidy
|
|
|
|
Pension
|
|
|
Payments
|
|
|
Receipts
|
|
|
2009
|
|
$
|
30,077
|
|
|
|
2,382
|
|
|
|
262
|
|
2010
|
|
|
18,398
|
|
|
|
2,311
|
|
|
|
267
|
|
2011
|
|
|
18,916
|
|
|
|
2,406
|
|
|
|
268
|
|
2012
|
|
|
19,613
|
|
|
|
2,463
|
|
|
|
267
|
|
2013
|
|
|
19,608
|
|
|
|
2,525
|
|
|
|
261
|
|
2014-2018
|
|
|
103,916
|
|
|
|
12,651
|
|
|
|
1,123
|
|
Assumptions used to determine the net periodic benefit cost of
the postretirement plan for the year to date periods are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Health care cost trend rate assumed for next year
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
10.00
|
%
|
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2016
|
|
|
|
2016
|
|
|
|
2012
|
|
If the health care cost trend rate were increased one percentage
point in each year, the accumulated postretirement benefit
obligation at December 28, 2008 and the aggregate of the
benefits earned during the period and the interest cost would
have increased by approximately 4% and 5%, respectively.
International
Plans
Pension coverage for employees of Hasbros international
subsidiaries is provided, to the extent deemed appropriate,
through separate defined benefit and defined contribution plans.
At December 28, 2008 and December 30, 2007, the
defined benefit plans had total projected benefit obligations of
$67,437 and $72,359, respectively, and fair values of plan
assets of $40,515 and $55,881, respectively. Substantially all
of the plan assets are invested in equity and fixed income
securities. The pension expense related to these plans was
$3,226, $3,937, and $3,702 in 2008, 2007 and 2006, respectively.
In fiscal 2009, the Company expects amortization of $120 of
prior service costs, $680 of unrecognized net losses and $28 of
unrecognized transition obligation to be included as a component
of net periodic benefit cost.
Expected benefit payments under the international defined
benefit pension plans for the five years subsequent to 2008 and
in the aggregate for the five years thereafter are as follows:
2009: $1,259; 2010: $1,326; 2011: $1,390; 2012: $1,557; 2013:
$1,684 and 2014 through 2018: $13,869.
Postemployment
Benefits
Hasbro has several plans covering certain groups of employees,
which may provide benefits to such employees following their
period of active employment but prior to their retirement. These
plans include certain severance plans which provide benefits to
employees involuntarily terminated and certain plans which
continue the Companys health and life insurance
contributions for employees who have left Hasbros employ
under terms of its long-term disability plan.
70
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Hasbro occupies certain offices and uses certain equipment under
various operating lease arrangements. The rent expense under
such arrangements, net of sublease income which is not material,
for 2008, 2007, and 2006 amounted to $43,634, $36,897, and
$34,603, respectively.
Minimum rentals, net of minimum sublease income, which is not
material, under long-term operating leases for the five years
subsequent to 2008 and in the aggregate thereafter are as
follows: 2009: $30,921; 2010: $22,118; 2011: $16,559; 2012:
$11,923; 2013: $9,527; and thereafter: $10,522
All leases expire prior to the end of 2018. Real estate taxes,
insurance and maintenance expenses are generally obligations of
the Company. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by
leases on other properties; thus, it is anticipated that future
minimum lease commitments will not be less than the amounts
shown for 2008.
In addition, Hasbro leases certain facilities which, as a result
of restructurings, are no longer in use. Future costs relating
to such facilities were accrued as a component of the original
charge and are not included in minimum rental amounts above.
|
|
(14)
|
Derivative
Financial Instruments
|
Hasbro uses foreign currency forwards to reduce the impact of
currency rate fluctuations on firmly committed and projected
future foreign currency transactions. These instruments hedge a
portion of the Companys anticipated inventory purchases
and other cross-border transactions through 2011. At
December 28, 2008, these contracts had net unrealized gains
of $72,053, of which $32,203 are recorded in prepaid expenses
and other current assets and $39,850 are recorded in other
assets. The Company has a master agreement with each of its
counterparties that allows for the netting of outstanding
forward contracts.
During 2008, 2007, and 2006, the Company reclassified net
losses, net of tax, from other comprehensive earnings to net
earnings of $1,409, $6,887, and $1,448, respectively, which
included gains (losses) of $1,292, $(37), and $(68),
respectively, as the result of hedge ineffectiveness.
The remaining balance in AOCE at December 28, 2008 of
$63,513 represents a net unrealized gain on foreign currency
contracts relating to hedges of inventory purchased during the
fourth quarter of 2008 or forecasted to be purchased during 2009
through 2011 and intercompany expenses and royalty payments
expected to be paid or received during 2009 through 2011. These
amounts will be reclassified into the consolidated statement of
operations upon the sale of the related inventory or receipt or
payment of the related royalties and expenses. Of the amount
included in AOCE at December 28, 2008, the Company expects
approximately $26,100 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
$42,382, $2,098, and $5,501 in 2008, 2007, and 2006,
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.
|
|
(15)
|
Commitments
and Contingencies
|
Hasbro had unused open letters of credit and related instruments
of approximately $100,700 and $70,000 at December 28, 2008
and December 30, 2007, respectively.
71
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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 existing agreements as of December 28,
2008, Hasbro may, provided the other party meets their
contractual commitment, be required to pay amounts as follows:
2009: $16,041; 2010: $5,605; and 2011: $36,172. Subsequent to
December 28, 2008, the Company entered into an agreement
with Marvel Characters B.V. (Marvel) that resulted
in the extension of the current agreement from the end of 2011
through the end of 2017. The extended agreement includes an
additional $100,000 in minimum guaranteed royalties, with the
potential for up to an additional $140,000 in guaranteed
royalties contingent upon the release by Marvel of certain
MARVEL character-based theatrical releases that meet certain
defined criteria.
In addition to the above commitments, certain of the above
contracts impose minimum marketing commitments on the Company.
At December 28, 2008, the Company had approximately
$227,673 in outstanding purchase commitments.
Hasbro is party to certain legal proceedings, none of which,
individually or in the aggregate, is deemed to be material to
the financial condition or results of operations of the Company.
Segment
and Geographic Information
Hasbro is a worldwide leader in childrens and family
leisure time products and services, including toys, games and
licensed products ranging from traditional to high-tech and
digital. At the beginning of 2008, the Company reorganized the
reporting structure of its operating segments and moved its
Mexican operations, previously managed and reported in the North
American segment, to the International segment. As a result, the
North American segment has been renamed the U.S. and Canada
segment. The management reorganization was the result of a
realignment of the Companys commercial markets and
reflects its objective to leverage its Mexican operations in
connection with its growth strategy in Latin and South America.
In 2008 the Companys segments include U.S. and
Canada, International, Global Operations and Other. Segment data
for 2007 and 2006 has been reclassified to reflect the 2008
segment structure.
The U.S. and Canada segment includes the development,
marketing and selling of boys action figures, vehicles and
playsets, girls toys, electronic toys and games, plush
products, preschool toys and infant products, electronic
interactive products, toy-related specialty products,
traditional board games and puzzles, DVD-based games and trading
card and role-playing games within the United States and Canada.
Within the International segment, the Company develops, markets
and sells both toy and certain game products in markets outside
of the U.S. and Canada, primarily the European, Asia
Pacific, and Latin and South American regions. The Global
Operations segment is responsible for manufacturing and sourcing
finished product for the Companys U.S. and Canada and
International segments. The Companys Other segment
licenses out the rights to certain of its toy and game
properties in connection with the sale of non-competing toys and
games and non-toy products, as well as consumer promotions.
Segment performance is measured at the operating profit level.
Included in Corporate and eliminations are certain corporate
expenses, the elimination of intersegment transactions and
certain assets benefiting more than one segment. Intersegment
sales and transfers are reflected in management reports at
amounts approximating cost. Certain shared costs, including
global development and marketing expenses, are allocated to
segments based upon foreign exchange rates fixed at the
beginning of the year, with adjustments to actual foreign
exchange rates included in Corporate and eliminations. The
accounting policies of the segments are the same as those
referenced in note 1.
72
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Results shown for fiscal years 2008, 2007 and 2006 are not
necessarily those which would be achieved were each segment an
unaffiliated business enterprise.
Information by segment and a reconciliation to reported amounts
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
Operating
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
External
|
|
|
Affiliate
|
|
|
Profit
|
|
|
and
|
|
|
Capital
|
|
|
Total
|
|
|
|
Customers
|
|
|
Revenue
|
|
|
(Loss)
|
|
|
Amortization
|
|
|
Additions
|
|
|
Assets
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
2,406,745
|
|
|
|
15,759
|
|
|
|
283,152
|
|
|
|
58,306
|
|
|
|
7,826
|
|
|
|
3,796,373
|
|
International
|
|
|
1,499,334
|
|
|
|
332
|
|
|
|
165,186
|
|
|
|
24,854
|
|
|
|
4,797
|
|
|
|
1,449,572
|
|
Global Operations(a)
|
|
|
7,512
|
|
|
|
1,619,072
|
|
|
|
19,450
|
|
|
|
63,940
|
|
|
|
80,618
|
|
|
|
1,409,427
|
|
Other Segment
|
|
|
107,929
|
|
|
|
|
|
|
|
51,035
|
|
|
|
7,938
|
|
|
|
139
|
|
|
|
255,737
|
|
Corporate and eliminations(b)
|
|
|
|
|
|
|
(1,635,163
|
)
|
|
|
(24,527
|
)
|
|
|
11,100
|
|
|
|
23,763
|
|
|
|
(3,742,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$
|
4,021,520
|
|
|
|
|
|
|
|
494,296
|
|
|
|
166,138
|
|
|
|
117,143
|
|
|
|
3,168,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
2,293,742
|
|
|
|
13,360
|
|
|
|
287,800
|
|
|
|
48,858
|
|
|
|
8,147
|
|
|
|
3,621,754
|
|
International
|
|
|
1,444,863
|
|
|
|
|
|
|
|
189,783
|
|
|
|
23,019
|
|
|
|
4,096
|
|
|
|
1,342,933
|
|
Global Operations(a)
|
|
|
11,707
|
|
|
|
1,493,750
|
|
|
|
19,483
|
|
|
|
67,519
|
|
|
|
61,678
|
|
|
|
1,337,321
|
|
Other Segment
|
|
|
87,245
|
|
|
|
|
|
|
|
38,881
|
|
|
|
3,515
|
|
|
|
371
|
|
|
|
179,095
|
|
Corporate and eliminations(b)
|
|
|
|
|
|
|
(1,507,110
|
)
|
|
|
(16,597
|
)
|
|
|
13,609
|
|
|
|
17,240
|
|
|
|
(3,244,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$
|
3,837,557
|
|
|
|
|
|
|
|
519,350
|
|
|
|
156,520
|
|
|
|
91,532
|
|
|
|
3,237,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
1,997,141
|
|
|
|
11,458
|
|
|
|
254,502
|
|
|
|
50,528
|
|
|
|
2,046
|
|
|
|
3,071,693
|
|
International
|
|
|
1,092,468
|
|
|
|
|
|
|
|
112,350
|
|
|
|
26,079
|
|
|
|
5,235
|
|
|
|
1,015,012
|
|
Global Operations(a)
|
|
|
13,185
|
|
|
|
1,242,354
|
|
|
|
27,158
|
|
|
|
46,584
|
|
|
|
57,487
|
|
|
|
1,073,871
|
|
Other Segment
|
|
|
48,687
|
|
|
|
|
|
|
|
15,729
|
|
|
|
2,002
|
|
|
|
105
|
|
|
|
134,970
|
|
Corporate and eliminations(b)
|
|
|
|
|
|
|
(1,253,812
|
)
|
|
|
(33,376
|
)
|
|
|
21,514
|
|
|
|
17,230
|
|
|
|
(2,198,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$
|
3,151,481
|
|
|
|
|
|
|
|
376,363
|
|
|
|
146,707
|
|
|
|
82,103
|
|
|
|
3,096,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Global Operations segment derives substantially all of its
revenues, and thus its operating results, from intersegment
activities. Operating profit of the Global Operations segment
for the fiscal year 2006 includes a charge of approximately
$11,200, primarily related to severance costs, in connection
with the reduction of manufacturing activity at the
Companys facility in Ireland. |
|
(b) |
|
Certain intangible assets, primarily goodwill, which benefit
multiple operating segments are reflected as Corporate assets
for segment reporting purposes. For application of
SFAS 142, these amounts have been allocated to the
reporting unit which benefits from their use. In addition,
allocations of certain expenses related to these assets to the
individual operating segments are done at the beginning of the
year based on budgeted amounts. Any differences between actual
and budgeted amounts are reflected in the Corporate segment. |
73
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The following table presents consolidated net revenues by
classes of principal products for the three fiscal years ended
December 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Games and puzzles
|
|
$
|
1,315,423
|
|
|
|
1,323,641
|
|
|
|
1,294,110
|
|
Boys toys
|
|
|
1,083,342
|
|
|
|
1,024,023
|
|
|
|
575,841
|
|
Girls toys
|
|
|
790,503
|
|
|
|
697,304
|
|
|
|
540,298
|
|
Preschool toys
|
|
|
480,694
|
|
|
|
434,893
|
|
|
|
406,663
|
|
Tweens toys
|
|
|
270,160
|
|
|
|
252,055
|
|
|
|
266,844
|
|
Other
|
|
|
81,398
|
|
|
|
105,641
|
|
|
|
67,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
3,151,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No individual product lines accounted for 10% or more of
consolidated net revenues during 2008 or 2006. During 2007,
revenues from TRANSFORMERS products accounted for 12.6% of
consolidated net revenues. No other individual product lines
accounted for 10% or more of consolidated net revenues in 2007.
Information as to Hasbros operations in different
geographical areas is presented below on the basis the Company
uses to manage its business. Net revenues are categorized based
on location of the customer, while long-lived assets (property,
plant and equipment, goodwill and other intangibles) are
categorized based on their location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,339,171
|
|
|
|
2,210,840
|
|
|
|
1,898,865
|
|
International
|
|
|
1,682,349
|
|
|
|
1,626,717
|
|
|
|
1,252,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
3,151,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,079,908
|
|
|
|
1,011,660
|
|
|
|
1,051,124
|
|
International
|
|
|
174,708
|
|
|
|
133,709
|
|
|
|
132,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,254,616
|
|
|
|
1,145,369
|
|
|
|
1,183,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal international markets include Europe, Canada, Mexico,
Australia, and Hong Kong.
Other
Information
Hasbro markets its products primarily to customers in the retail
sector. Although the Company closely monitors the
creditworthiness of its customers, adjusting credit policies and
limits as deemed appropriate, a substantial portion of its
customers ability to discharge amounts owed is generally
dependent upon the overall retail economic environment.
Sales to the Companys three largest customers, Wal-Mart
Stores, Inc., Target Corporation and Toys R Us,
Inc., amounted to 25%, 12% and 10%, respectively, of
consolidated net revenues during 2008, 24%, 12% and 11% during
2007 and 24%, 13% and 11% during 2006. These net revenues were
primarily related to the U.S. and Canada segment.
Hasbro purchases certain components used in its manufacturing
process and certain finished products from manufacturers in the
Far East. The Companys reliance on external sources of
manufacturing can be shifted, over a period of time, to
alternative sources of supply for products it sells, should such
changes be
74
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
necessary. However, if the Company were prevented from obtaining
products from a substantial number of its current Far East
suppliers due to political, labor or other factors beyond its
control, the Companys operations would be disrupted,
potentially for a significant period of time, while alternative
sources of product were secured. The imposition of trade
sanctions by the United States or the European Union against a
class of products imported by Hasbro from, or the loss of
normal trade relations status by, the Peoples
Republic of China could significantly increase the cost of the
Companys products imported into the United States or
Europe.
|
|
(17)
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full Year
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
704,220
|
|
|
|
784,286
|
|
|
|
1,301,961
|
|
|
|
1,231,053
|
|
|
|
4,021,520
|
|
Gross profit
|
|
|
433,059
|
|
|
|
476,064
|
|
|
|
728,126
|
|
|
|
691,543
|
|
|
|
2,328,792
|
|
Earnings before income taxes
|
|
|
55,670
|
|
|
|
55,285
|
|
|
|
201,520
|
|
|
|
128,580
|
|
|
|
441,055
|
|
Net earnings
|
|
|
37,470
|
|
|
|
37,486
|
|
|
|
138,229
|
|
|
|
93,581
|
|
|
|
306,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|