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 27, 2009
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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
(Address of Principal
Executive Offices)
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02862
(Zip
Code)
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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
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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 whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files.) Yes o 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 þ
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Accelerated filer o
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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 26, 2009 (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
$3,073,435,000. The registrant does not have non-voting common
stock outstanding.
The number of shares of common stock outstanding as of
February 8, 2010 was 136,369,761.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our definitive proxy statement for our 2010 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 products and services with a broad portfolio of brands and
entertainment properties. As a brand-driven, consumer-focused
global company, Hasbro brings to market a wide range of toys,
games and licensed products, from traditional to high-tech and
digital, under well-known brand names such as TRANSFORMERS,
PLAYSKOOL, NERF, LITTLEST PET SHOP, MY LITTLE PONY, G.I. JOE,
TONKA, MILTON BRADLEY, PARKER BROTHERS, CRANIUM and WIZARDS OF
THE COAST. 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. We also seek to expand awareness of our brands
through immersive entertainment experiences, including
television and movies. In 2009 we purchased a 50% interest in a
joint venture with Discovery Communications, Inc.
(Discovery). This joint venture operates a
television network in the United States dedicated to
high-quality childrens and family entertainment and
educational programming.
Product
Categories
We market our brands under the following primary product
categories: (1) boys toys; (2) games and
puzzles; (3) girls toys; and (4) preschool toys.
Descriptions of these product categories are as follows:
Our boys toys category includes a wide range of core brand
offerings such as TRANSFORMERS and G.I. JOE action figures and
accessories, NERF sports and action products, 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 2009, sales in our boys toys
category also benefited from major motion picture releases of
TRANSFORMERS: REVENGE OF THE FALLEN and G.I. JOE: THE
RISE OF COBRA. In addition, STAR WARS, SPIDER-MAN and
TRANSFORMERS products were each supported by animated television
series. In 2010, the major motion picture IRON MAN 2 is
expected to be released based on the MARVEL character. In
addition to marketing and developing action figures and
accessories 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. Other key
boys brands include TONKA and SUPERSOAKER.
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
LADDERS, CANDY LAND, TROUBLE, MOUSETRAP, OPERATION, HUNGRY
HUNGRY HIPPOS, CONNECT FOUR, TWISTER, YAHTZEE, CRANIUM, JENGA,
SIMON, CLUE, SORRY!, RISK, BOGGLE, TRIVIAL PURSUIT, GUESS WHO?
and BOP IT!, 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
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role-playing games, including MAGIC: THE GATHERING, DUEL MASTERS
and DUNGEONS & DRAGONS. We seek to keep our game
brands relevant through sustained marketing programs, such as
FAMILY GAME NIGHT, as well as by offering consumers new ways to
experience these brands.
In our girls toys category, we seek to provide a
traditional and wholesome play experience. Girls toy
brands include LITTLEST PET SHOP, MY LITTLE PONY, FURREAL
FRIENDS, BABY ALIVE and STRAWBERRY SHORTCAKE. In 2010, we will
seek to expand the MY LITTLE PONY brand through television
programming.
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
preschool marketing programs, 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 certain TONKA lines of trucks
and interactive toys and the PLAY-DOH brand. We recently entered
into a ten-year agreement with Sesame Workshop that provides us
with the licensed rights to produce products based upon the
SESAME STREET portfolio of characters, including ELMO, BIG BIRD,
and COOKIE MONSTER, among others, commencing in 2011.
Segments
Organizationally, our three principal segments are U.S. and
Canada, International and Entertainment and Licensing. The
U.S. and Canada and International 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. The
Entertainment and Licensing segment engages in the out-licensing
of our trademarks, characters and other brand and intellectual
property rights to third parties for non-competing products and
also conducts our movie, television and online entertainment
operations. In addition, our Global Operations segment is
responsible for arranging product manufacturing and sourcing for
the U.S. and Canada and International segments. Financial
information with respect to our segments and geographic areas is
included in note 17 to our consolidated financial
statements, which are included in Item 8 of this
Form 10-K.
The Companys strategy is focused around re-imagining,
re-inventing, and re-igniting its brands globally through the
development and marketing of innovative toy and game products,
providing immersive entertainment experiences for our consumers,
and expansion of our brands into other consumer products. The
following is a discussion of each segment.
U.S.
and Canada
This segment engages in the marketing and sale of our product
categories in the United States and Canada. The U.S. and
Canada segments strategy is based on promoting our brands
through innovation and reinvention of toys and games. This is
accomplished through introducing new initiatives driven by
consumer and marketplace insights and leveraging opportunistic
toy and game lines and licenses. This strategy leverages off of
efforts to increase consumer awareness of the Companys
core brands through entertainment experiences such as motion
pictures, television and publishing. Major 2009 brands and
products included TRANSFORMERS, LITTLEST PET SHOP, STAR WARS,
NERF, MONOPOLY, PLAYSKOOL, PLAY-DOH, MARVEL products, MAGIC: THE
GATHERING, G.I. JOE, MY LITTLE PONY and FURREAL FRIENDS.
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International
The International segment engages in the marketing and sale of
our product categories 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
direct presence. 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 recent years, we expanded our operations in Brazil, China,
Russia, the Czech Republic, Romania and Korea. We will continue
to expand operations in emerging markets in future years through
the establishment of subsidiaries or increased involvement with
our existing distributors. Key international brands for 2009
included TRANSFORMERS, LITTLEST PET SHOP, MONOPOLY, TRIVIAL
PURSUIT, STAR WARS, PLAYSKOOL and MY LITTLE PONY.
Entertainment
and Licensing
Our Entertainment and Licensing segment includes our lifestyle
licensing, digital licensing, movie, television and online
entertainment operations. Our lifestyle licensing category seeks
to promote our brands through the out-licensing of our
intellectual properties to third parties for promotional and
merchandising uses in businesses which do not compete directly
with our own product offerings, such as apparel, publishing,
home goods and electronics.
Our digital licensing category seeks to promote our brands
through the out-licensing of our intellectual properties in the
digital area, such as for applications on mobile phones,
personal computers, and video game consoles. This is primarily
done through our long-term strategic alliance with Electronic
Arts Inc. (EA), which provides EA with the exclusive
worldwide rights to create digital games for all of these major
platforms based on most of our toy and game intellectual
properties.
As noted above, in 2009, we purchased a 50% interest in a joint
venture with Discovery that operates a television network in the
United States. This network is dedicated to providing
high-quality childrens and family entertainment and
educational programming. The network is expected to have
approximately 60 million subscribers at relaunch. The
rebranded network, THE HUB, is expected to launch in the fall of
2010. To support this venture, we established a virtual
television studio that will produce programming for the network
as well as distribute this programming internationally. The
programming will primarily be based on our brands, but will also
include third-party branded content. The studio will have a
coordinated development process that aligns with the network.
In addition to the above, we also seek to promote and leverage
our brands through major motion pictures. In 2009,
TRANSFORMERS: REVENGE OF THE FALLEN and G.I. JOE: THE
RISE OF COBRA were released based on our brands. We also
have a long-term strategic relationship with Universal Pictures
to produce at least three motion pictures based on certain of
our core brands, with an option to produce two additional
movies. The first movie under this relationship is expected to
be released in 2012.
Promotion of our brands through major motion pictures and
television programming provides our consumers with the ability
to experience our brands in a different format which we believe
can result in increased product sales, royalty revenues, and
overall brand awareness. To a lesser extent, we can also earn
revenue from our participation in the financial results of
motion pictures and related DVD releases and through the
distribution of television programming. Revenue from product
sales is a component of the U.S. and Canada and International
segments, while royalty revenues, including revenues earned from
movies and television programming, is included in the
Entertainment and Licensing segment.
Global
Operations
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
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operation for quality control and order coordination purposes.
See Manufacturing and Importing below for more
details concerning overseas manufacturing and sourcing.
Other
Information
To further extend our range of products in the various segments
of our business, we sell a portion of our toy and game products
directly to retailers, 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.
During the 2009 and 2007 fiscal years, revenues generated from
TRANSFORMERS products were approximately $592,000 and $482,000,
respectively, which was 14.5% and 12.6%, respectively, of our
consolidated net revenues in those years. No other line of
products constituted 10% or more of our consolidated net
revenues in 2009 or 2007. No individual line of products
accounted for 10% or more of our consolidated net revenues
during our 2008 fiscal year.
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
securitization 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 2009, the second half of the year
accounted for approximately 65% of full year revenues with the
third and fourth quarters accounting for 31% and 34% of full
year revenues, respectively. In years where the Company has
products tied to a major motion picture release, such as in 2009
with the mid-year releases of TRANSFORMERS: REVENGE OF THE
FALLEN, G.I. JOE: THE RISE OF COBRA and X-MEN
ORIGINS: WOLVERINE, and in 2008 with the mid-year releases
of IRON MAN, THE INCREDIBLE HULK and INDIANA
JONES AND THE KINGDOM OF THE CRYSTAL SKULL, this
concentration of revenue late in the year 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 24, 2010 and January 25, 2009 were
approximately $195,000 and $108,000, 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 2010 are
substantially the same as those we employed 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
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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 2009, we utilized cash from our
operations, borrowings under our revolving credit agreement 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 principal operating segments. In
2009, 2008, and 2007, we spent $181,195, $191,424 and $167,194,
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 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 2009, 2008, and 2007, we incurred $330,651, $312,986 and
$316,807, 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.
Marketing
and Sales
As we are focused on re-imagining, re-inventing and re-igniting
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 which comprise our
principal operating segments. 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, 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
2009, net revenues from our three largest customers, Wal-Mart
Stores, Inc., Target Corporation and Toys R Us,
Inc., represented 25%, 13% and 11%, respectively, of
consolidated net revenues, and sales to our top five customers,
including Wal-Mart,
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Target and Toys R Us, Inc., accounted for
approximately 54% of our consolidated net revenues. In the
U.S. and Canada segment, approximately 74% of our net
revenues 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 2009
we spent $412,580 on advertising, promotion and marketing
programs compared to $454,612 in 2008 and $434,742 in 2007.
Manufacturing
and Importing
During 2009 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 2010 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 severely 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. We also compete with companies that
offer branded entertainment focused on children and their
families.
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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 phenomenon
that many children have been moving away from traditional toys
and games at a younger age and the array of products and
entertainment offerings competing for the attention of children
has expanded. 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 creates new
opportunities for existing competitors and
start-ups to
develop products which compete with our toy and game offerings.
Employees
At December 27, 2009, we employed approximately
5,800 persons worldwide, approximately 3,100 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, other applicable
domestic and international product 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 or other safety issue impacting our
product 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.
7
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 17 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.
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 ever-evolving consumer preferences, combined with
the high level of competition and low barriers to entry in the
family entertainment industry, make it difficult to maintain and
build upon 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 and
evolves quickly. Our success is critically dependent upon the
consumer appeal of our products. 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 business
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 interest from 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 critical to identify and offer
what are considered to be the next hot toys and
games on childrens wish lists and to
effectively anticipate childrens evolving entertainment
interests. Our continued
8
success will depend on our ability to develop, market and sell
popular toys, games and other entertainment offerings, 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 continued
re-imagination, re-invigoration and extension of our existing
family entertainment properties in ways we believe will capture
evolving consumer interest and imagination, offer immersive
brand experiences 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, offering
continual product innovation 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, create an
environment in which some products can fail to achieve consumer
acceptance, and other 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 and attempting to anticipate 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 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 expanding their interests beyond traditional toys and games
to a wider array of entertainment products 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.
9
Delays
or increased costs associated with the development and offering
of entertainment media based upon or related to our brands, or
lack of sufficient consumer interest in such entertainment
media, can harm our business.
As part of our strategy of offering immersive brand experiences,
we look to offer consumers the ability to enjoy our brands in as
many different forms and formats as possible. Entertainment
media, in forms such as motion pictures and television, can
provide popular platforms for consumers to experience our brands
and the success of such media efforts can significantly impact
demand for our products and our financial success.
The success of our products is often dependent on the timelines
and effectiveness of media efforts. Television programming,
movie and DVD releases, comic book releases, and other media
efforts are often critical in generating interest in our
products and brands. 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.
Similarly, if our and our partners media efforts fail to
garner sufficient consumer interest and acceptance, our revenues
and the financial return from such efforts will be harmed. In
2009 we entered into a joint venture with Discovery
Communications, Inc. (Discovery). Through that joint
venture, we are currently working with Discovery to offer a
childrens and family entertainment channel called THE HUB,
which is scheduled to debut in the fall of 2010. In connection
with this joint venture effort, we are also building a virtual
studio, called Hasbro Studios, which will develop and produce
entertainment media based on our brands. Lack of consumer
interest in and acceptance of THE HUB, programming appearing on
THE HUB, other programming developed by Hasbro Studios, and
products related to that programming could significantly harm
our business. Similarly, our business could be harmed by greater
than expected costs, or unexpected delays or difficulties,
associated with the introduction of the rebranded joint venture
network, the development of Hasbro Studios and the creation of
new content based on our brands to appear on the joint venture
network and elsewhere.
At December 27, 2009, $371,783, or 9.5%, of our total
assets represented our investment in the Discovery joint
venture. If the launch of the rebranded television channel is
not successful, or if there are subsequent declines in the
success or profitability of the channel, then our investment may
become impaired, which could result in a write-down through net
earnings.
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 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.
10
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 public
health pandemics 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 us to make a profit.
Rising fuel and raw material prices, for paperboard and other
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 a
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 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.
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 27, 2009, we had
$120,115 of prepaid royalties, $43,115 of which are included in
prepaid expenses and other current assets and $77,000 of which
are included in other assets. Under the terms of existing
contracts as of December 27, 2009, we may be required to
pay future minimum guaranteed royalties and other licensing fees
totaling approximately $331,491. 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
11
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 may 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
by retailers 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. 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.
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 27,
2009, 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. In fact, over
time, we expect our international sales and operations to grow
both in absolute terms and as a percentage of our overall
business as one of our key business strategies is to increase
our presence in emerging and underserved markets. Additionally,
as we discuss below, we utilize
12
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, including operations in emerging markets that we
have entered, may enter, or may increase our presence in, 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
concentration 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 27, 2009, Wal-Mart Stores, Inc., Target
Corporation, and Toys R Us, Inc., accounted for
approximately 25%, 13% and 11%, 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 54% of our consolidated
net revenues. In the U.S. and Canada segment, approximately
74% 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 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 result
in higher bad debt expense.
13
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, including
natural disasters or pandemics, 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, and natural disasters or health
pandemics impacting China. 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.
Part
of our strategy for remaining relevant to 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
otherwise become interested in more and more sophisticated and
adult products, such as videogames and consumer electronics, at
younger and younger ages, we have sought to keep our products
relevant for these consumers. One initiative we have pursued to
capture the interest of children is to offer innovative
childrens electronic toys and games. Examples of such
products in the last few years include our I-branded products
such as I-DOG and I-CAT, and our FURREAL FRIENDS
14
line of products, including BUTTERSCOTCH PONY, BISCUIT MY
LOVIN PUP 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 than traditional toys and games.
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. 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. Additionally, changes in financial
reporting, regulatory or other requirements which went into
effect in 2010 or may occur in the future may significantly
increase the cost of our accounts receivable securitization
facility, which could make use of such a facility uneconomical.
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 in 2010. 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, regulatory or accounting changes which
make accounts receivable securitization facilities more
expensive or otherwise less desirable as sources of working
capital funding, or other 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.
15
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 27, 2009, we had $1,134,723 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.
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.
16
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, environmental regulations and the Foreign Corrupt
Practices Act. Complying with these regulations imposes costs on
us which can reduce our profitability and our failure to
successfully comply with any such legal requirements could
subject us to monetary liabilities and other sanctions that
could further 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 27, 2009, we had $554,567 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 acquisitions or
investments in joint ventures, 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.
In the case of our joint venture with Discovery Communications,
Inc., we looked to partner with a company that has shown the
ability to establish and operate compelling entertainment
channels. 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 or investments 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.
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
17
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. Goodwill is
not amortized and is required to be periodically evaluated for
impairment. At December 27, 2009, $475,931, or 12.2%, 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 or our
investment in the joint venture 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
Entertainment and Licensing 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 Entertainment and
Licensing 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 1,939,000 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
87,900 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, Australia and Brazil, 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, it could
secure similar substitute properties without a material adverse
impact on its operations.
|
|
Item 3.
|
Legal
Proceedings
|
The Company has outstanding tax assessments from the Mexican tax
authorities relating to the years 2000, 2001, 2002, 2003 and
2004. These tax assessments, which total approximately
$130 million in aggregate (including interest, penalties,
and inflation updates), are based on transfer pricing issues
between the Companys subsidiaries with respect to the
Companys operations in Mexico. The Company has filed suit
in the Federal Tribunal of Fiscal and Administrative Justice in
Mexico challenging the 2000 through 2003 assessments. The
Company filed the suit related to the 2000 and 2001 assessments
in May 2009; the 2002
18
assessment in June 2008; and the 2003 assessment in
March 2009. The Company is challenging the 2004 assessment
through administrative appeals. The Company expects to be
successful in sustaining its positions for all of these years.
However, in order to challenge the outstanding tax assessments
related to 2000 through 2003, 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 bonds and accordingly, as of
December 27, 2009, bonds totaling approximately
$105 million (at year-end 2009 exchange rates) have been
posted related to the 2000, 2001, 2002 and 2003 assessments.
These bonds guarantee the full amounts of the related
outstanding tax assessments in the event the Company is not
successful in its challenge to them. The Company does not
currently expect that it will be required to make a deposit or
post a bond related to the 2004 assessment.
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)
|
|
|
46
|
|
|
President and Chief Executive Officer
|
|
|
Since 2008
|
|
David D. R. Hargreaves(2)
|
|
|
57
|
|
|
Chief Operating Officer
|
|
|
Since 2008
|
|
Deborah Thomas(3)
|
|
|
46
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
Since 2009
|
|
John Frascotti(4)
|
|
|
49
|
|
|
Global Chief Marketing Officer
|
|
|
Since 2008
|
|
Duncan Billing(5)
|
|
|
51
|
|
|
Global Chief Development Officer
|
|
|
Since 2008
|
|
Barry Nagler(6)
|
|
|
53
|
|
|
Senior Vice President, Chief Legal Officer and Secretary
|
|
|
Since 2008
|
|
Martin R. Trueb
|
|
|
57
|
|
|
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. |
|
(2) |
|
Prior thereto, Chief Operating Officer and Chief Financial
Officer from 2008 to 2009; 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) |
|
Prior thereto, Senior Vice President, Head of Corporate Finance
from 2008 to 2009; prior thereto, Senior Vice President and
Controller from 2003 to 2008. |
|
(4) |
|
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. |
|
(5) |
|
Prior thereto, Chief Marketing Officer, U.S. Toy Group since
2004; prior thereto, General Manager, Big Kids Division, since
2002. |
|
(6) |
|
Prior thereto, Senior Vice President, General Counsel and
Secretary since 2001. |
19
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The Companys common stock, par value $0.50 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
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
29.91
|
|
|
|
21.14
|
|
|
$
|
0.20
|
|
2nd Quarter
|
|
|
29.23
|
|
|
|
22.27
|
|
|
|
0.20
|
|
3rd Quarter
|
|
|
29.36
|
|
|
|
22.79
|
|
|
|
0.20
|
|
4th Quarter
|
|
|
32.47
|
|
|
|
26.82
|
|
|
|
0.20
|
|
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
|
|
The approximate number of holders of record of the
Companys Common Stock as of February 8, 2010 was
9,300.
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
Repurchases made in the fourth quarter (in whole numbers of
shares and dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
(or Approximate Dollar
|
|
|
|
|
|
|
(c) Total Number of Shares
|
|
Value) of Shares (or
|
|
|
(a) Total Number
|
|
(b) Average Price
|
|
(or Units) Purchased as
|
|
Units) that May Yet Be
|
|
|
of Shares (or
|
|
Paid per Share
|
|
Part of Publicly Announced
|
|
Purchased Under the
|
Period
|
|
Units) Purchased
|
|
(or Unit)
|
|
Plans or Programs
|
|
Plans or Programs
|
|
October 2009
9/28/09 10/25/09
|
|
|
678,100
|
|
|
$
|
27.9630
|
|
|
|
678,100
|
|
|
$
|
203,218,501
|
|
November 2009
10/26/09 11/29/09
|
|
|
772,500
|
|
|
$
|
28.5458
|
|
|
|
772,500
|
|
|
$
|
181,166,876
|
|
December 2009
11/30/09 12/27/09
|
|
|
637,500
|
|
|
$
|
30.9540
|
|
|
|
637,500
|
|
|
$
|
161,433,680
|
|
Total
|
|
|
2,088,100
|
|
|
$
|
29.0918
|
|
|
|
2,088,100
|
|
|
$
|
161,433,680
|
|
In February 2008, the Companys Board of Directors
authorized the repurchase of up to $500 million in common
stock. 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.
20
|
|
Item 6.
|
Selected
Financial Data
|
(Thousands of dollars and shares except per share data and
ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,067,947
|
|
|
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
3,151,481
|
|
|
|
3,087,627
|
|
Net earnings
|
|
$
|
374,930
|
|
|
|
306,766
|
|
|
|
333,003
|
|
|
|
230,055
|
|
|
|
212,075
|
|
Per Common Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.69
|
|
|
|
2.18
|
|
|
|
2.13
|
|
|
|
1.38
|
|
|
|
1.19
|
|
Diluted
|
|
$
|
2.48
|
|
|
|
2.00
|
|
|
|
1.97
|
|
|
|
1.29
|
|
|
|
1.09
|
|
Cash dividends declared
|
|
$
|
0.80
|
|
|
|
0.80
|
|
|
|
0.64
|
|
|
|
0.48
|
|
|
|
0.36
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,896,892
|
|
|
|
3,168,797
|
|
|
|
3,237,063
|
|
|
|
3,096,905
|
|
|
|
3,301,143
|
|
Total long-term debt
|
|
$
|
1,131,998
|
|
|
|
709,723
|
|
|
|
845,071
|
|
|
|
494,917
|
|
|
|
528,389
|
|
Ratio of Earnings to Fixed Charges(1)
|
|
|
7.96
|
|
|
|
8.15
|
|
|
|
10.86
|
|
|
|
9.74
|
|
|
|
8.33
|
|
Weighted Average Number of Common Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
139,487
|
|
|
|
140,877
|
|
|
|
156,054
|
|
|
|
167,100
|
|
|
|
178,303
|
|
Diluted
|
|
|
152,780
|
|
|
|
155,230
|
|
|
|
171,205
|
|
|
|
181,043
|
|
|
|
197,436
|
|
|
|
|
(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.
21
|
|
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
2009, 2008 and 2007, the second half of the year accounted for
65%, 63% and 66% 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 based on licensed rights from outside
inventors. In addition, the Company licenses rights to produce
products based on movie, television, music and other
entertainment properties owned by third parties, such as the
MARVEL and STAR WARS properties.
The Companys business is separated into three principal
business segments, U.S. and Canada, International and
Entertainment and Licensing. 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 and sales operations. The Companys
Entertainment and Licensing segment includes the Companys
lifestyle licensing, digital gaming, movie, television and
online entertainment operations. In addition to these three
primary segments, the Companys world-wide manufacturing
and product sourcing operations are managed through its Global
Operations segment.
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 and entertainment 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, offering
immersive entertainment experiences which allow consumers to
experience the Companys brands across different forms and
formats, and optimizing efficiencies within the Company to
reduce costs, increase operating profits and maintain a strong
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, and to leverage profitability. During 2009 the Company
had strong revenues from core brands, namely TRANSFORMERS,
LITTLEST PET SHOP, NERF, MONOPOLY, PLAYSKOOL, PLAY-DOH, MAGIC:
THE GATHERING and G.I. JOE. The Companys strategy of
re-imagining, re-inventing and re-igniting its brands has been
instrumental to achieving its overall long-term growth
objectives.
The Company also seeks to drive revenues by increasing the
visibility of its core brands through entertainment. As an
example of this, in June of 2009, the TRANSFORMERS: REVENGE
OF THE FALLEN motion picture was released as a sequel to the
2007 motion picture TRANSFORMERS. In addition, in August
2009, the motion picture G.I. JOE: THE RISE OF COBRA was
released. The Company developed and
22
marketed product lines based on these motion pictures. As a
result of pairing these core brands with motion picture
entertainment, both the movies and the product lines benefited.
In addition, the Company has entered into a strategic
relationship with Universal Pictures to produce at least three
motion pictures based on certain of Hasbros core brands,
with the potential for production of two additional pictures.
The first movie is expected to be released in 2012. As part of
its strategy, in addition to using theatrical entertainment, the
Company continues to seek opportunities to use other
entertainment outlets and forms of entertainment as a way to
build awareness of its brands which has proved instrumental to
achieving its overall long-term growth objectives.
In April 2009 the Company announced the entry into an agreement
to form a joint venture with Discovery Communications, Inc.
(Discovery) to create a television network in the
United States dedicated to high-quality childrens and
family entertainment and educational programming. The
transaction closed in May 2009. Programming on the network will
include content based on Hasbros brands, Discoverys
library of childrens educational programming, as well as
programming developed by third parties. The Company expects the
rebranded network, THE HUB, to debut in late fall of 2010 and
believes that it will reach approximately 60 million homes
in the U.S. at that time, with programming targeted to
children 14 years of age and under. The Company believes
that this effort will support its strategy of growing its core
brands well beyond traditional toys and games and to provide
immersive entertainment experiences for consumers of all ages in
any form or format. In connection with this transaction, the
Company has begun building an internal creative group that will
be responsible for the creation and development of television
programming based on Hasbros brands. The Company expects
to incur a certain level of investment spending leading up to
the debut of the rebranded channel, as well as costs in 2010 and
beyond related to the production of television programming.
While the Company believes it has built 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. The Companys primary licenses include its
agreements with Marvel Characters B.V. (Marvel);
Lucas Licensing, Ltd. (Lucas), related to the STAR
WARS brand; and Sesame Workshop, related to the Sesame Street
brand of characters. The majority of product offerings under the
Sesame Workshop license will commence in 2011. In 2009 and 2008,
the Company had significant sales of products related to the
Companys license with Marvel, primarily due to the movie
releases of IRON MAN in May 2008, THE INCREDIBLE HULK
in June 2008 and X-MEN ORIGINS: WOLVERINE in May
2009. 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 has also had a high level of
revenues from 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) in 2007.
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. A number of products under this
agreement have been released in 2008 and 2009 and the line will
continue to be updated and expanded in 2010.
The Company is also investing to grow its business in emerging
markets. During the last two years, the Company expanded its
operations in China, Brazil, Russia, Korea, Romania and the
Czech Republic. In
23
addition, the Company is seeking to grow its business in
entertainment and digital gaming, and will continue to evaluate
strategic alliances and acquisitions which may complement its
current product offerings, allow it entry into an area which is
adjacent to or complementary to the toy and game business, or
allow it to further develop awareness of its brands and expand
the ability of consumers to experience its brands in different
forms of media. In addition to the Discovery joint venture
discussed above, another example of this includes the
acquisition of Cranium, Inc., a developer and marketer of
CRANIUM branded games and related products, in 2008. In
addition, 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 2009, the Company continued to expand its
brand portfolio through several smaller brand acquisitions that
it believes will be complementary to its core brands.
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 7 years the Company has improved its full year
operating margin from 7.8% in 2002 to 14.5% in 2009. The Company
reviews its operations on an ongoing basis and seeks to reduce
the cost structure of its underlying business and promote
efficiency.
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 five years,
the Companys Board of Directors (the Board)
has adopted four successive 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 2009, 2008 and 2007, the Company
spent $90,994, $357,589 and $587,004, respectively, to
repurchase 3,172, 11,736 and 20,795 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 27, 2009,
the Company had $161,434 remaining under the February 2008
authorization. In addition, in February 2010 the Company
announced an increase in its quarterly dividend to $0.25 per
share.
During 2009, the Company operated in an environment of both a
stronger U.S. dollar relative to foreign currencies
compared to 2008 as well as weakened overall economic
conditions. Accordingly, the Company has sought to mitigate the
impact of these conditions by instituting a variety of cost
control initiatives. As of December 27, 2009 the Company
had $636,045 in cash and cash equivalents and had available
capacity, if needed, under its revolving credit agreement and
accounts receivable securitization program. In connection with
the announcement of a joint venture agreement with Discovery in
April 2009, the Company made a $300,000 cash payment to purchase
its 50% share of the joint venture. The Company funded its
investment through the issuance of debt with a principal amount
of $425,000 in May 2009. 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, accounts receivable securitization program and other
borrowing facilities are adequate to meet its working capital
needs for 2010.
24
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 27, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
41.2
|
|
|
|
42.1
|
|
|
|
41.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
58.8
|
|
|
|
57.9
|
|
|
|
58.9
|
|
Amortization
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
1.8
|
|
Royalties
|
|
|
8.1
|
|
|
|
7.8
|
|
|
|
8.2
|
|
Research and product development
|
|
|
4.5
|
|
|
|
4.8
|
|
|
|
4.4
|
|
Advertising
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
11.3
|
|
Selling, distribution and administration
|
|
|
19.5
|
|
|
|
19.8
|
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
14.5
|
|
|
|
12.3
|
|
|
|
13.5
|
|
Interest expense
|
|
|
1.5
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Interest income
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
Other (income) expense, net
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
13.0
|
|
|
|
11.0
|
|
|
|
12.0
|
|
Income taxes
|
|
|
3.8
|
|
|
|
3.4
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
9.2
|
%
|
|
|
7.6
|
%
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
Each of the fiscal years in the three-year period ended
December 27, 2009 were fifty-two week periods.
Net earnings for the fiscal year ended December 27, 2009
were $374,930, or $2.48 per diluted share. This compares to net
earnings for fiscal 2008 and 2007 of $306,766 and $333,003, or
$2.00 and $1.97 per diluted share, respectively.
Net earnings for 2009 include dilution from the Companys
investment in the joint venture with Discovery and its issuance
of $425,000 of long-term debt, both of which closed in May 2009,
as well as the
start-up of
the Companys internal television studio. Net earnings for
2007 includes non-operating expense related to the change in
fair value of certain warrants required to be classified as a
liability of $44,370. These warrants were repurchased during May
2007. Net earnings for 2007 also includes a favorable tax
adjustment of $29,619 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 27,
2009 were $4,067,947 compared to $4,021,520 in 2008 and
$3,837,557 in 2007. Most of the Companys net revenues and
operating profits were derived from its three principal
segments: the U.S. and Canada segment, the International
segment and the Entertainment and Licensing segment, which are
discussed in detail below. Consolidated net revenues in 2009
were negatively impacted by foreign currency translation of
approximately $65,200 as a result of the stronger
U.S. dollar in 2009 as compared to 2008. Consolidated net
revenues in 2008 were also 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.
25
The following table presents net revenues and operating profit
data for the Companys three principal segments for 2009,
2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
2009
|
|
Change
|
|
2008
|
|
Change
|
|
2007
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
2,447,943
|
|
|
|
2
|
%
|
|
$
|
2,406,745
|
|
|
|
5
|
%
|
|
$
|
2,293,742
|
|
International
|
|
$
|
1,459,476
|
|
|
|
(3
|
)%
|
|
$
|
1,499,334
|
|
|
|
4
|
%
|
|
$
|
1,444,863
|
|
Entertainment and Licensing
|
|
$
|
155,013
|
|
|
|
44
|
%
|
|
$
|
107,929
|
|
|
|
24
|
%
|
|
$
|
87,245
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
380,580
|
|
|
|
34
|
%
|
|
$
|
283,152
|
|
|
|
(2
|
)%
|
|
$
|
287,800
|
|
International
|
|
$
|
162,159
|
|
|
|
(2
|
)%
|
|
$
|
165,186
|
|
|
|
(13
|
)%
|
|
$
|
189,783
|
|
Entertainment and Licensing
|
|
$
|
65,572
|
|
|
|
28
|
%
|
|
$
|
51,035
|
|
|
|
31
|
%
|
|
$
|
38,881
|
|
U.S.
and Canada
U.S. and Canada segment net revenues for the year ended
December 27, 2009 increased 2% to $2,447,943 from
$2,406,745 in 2008. The increase in net revenues in 2009 was
primarily due to increased revenues in the boys toys
category, primarily as a result of increased sales of
TRANSFORMERS and G.I. JOE products due to the theatrical
releases of TRANSFORMERS: REVENGE OF THE FALLEN in June
2009 and G.I. JOE: THE RISE OF COBRA in August 2009, as
well as increased sales of NERF products. Increased sales in the
boys toys category were partially offset by decreased
sales of STAR WARS, MARVEL and INDIANA JONES products. The
increase in U.S. and Canada segment net revenues for 2009
was also due to increased revenues in the preschool category
primarily resulting from higher sales of TONKA and PLAY-DOH
products, partially offset by decreased sales of PLAYSKOOL
products. Revenues from sales of PLAYSKOOL products declined
primarily as a result of decreased sales of ROSE PETAL COTTAGE
products which are no longer in the Companys product line.
Revenues from the girls toys category decreased primarily
as a result of lower sales of BABY ALIVE and I-DOG products,
partially offset by sales of STRAWBERRY SHORTCAKE products which
were reintroduced to the Companys line in the second
quarter of 2009. Although revenues from LITTLEST PET SHOP
products decreased slightly in 2009, sales of these products
remained a significant contributor to U.S. and Canada
segment net revenues in 2009. Net revenues in the games and
puzzles category decreased slightly in 2009, primarily due to
decreased sales of traditional board games, partially offset by
increased revenues from sales of MAGIC: THE GATHERING trading
cards. Net revenues in 2009 were also negatively impacted by
decreased sales of TOOTH TUNES products, which have been
discontinued in the Companys product line.
U.S. and Canada operating profit increased to $380,580 in
2009 from $283,152 in 2008. Operating profit in 2009 was
positively impacted by approximately $3,100 due to the
translation of foreign currencies to the U.S. dollar.
U.S. and Canada gross profit increased in 2009 primarily as
a result of the increased revenues discussed above, lower
obsolescence charges, and a change in the mix of products sold,
primarily due to increased sales of entertainment-based products
in 2009 as compared to 2008. The increase in operating profit
for 2009 also reflects decreased selling, distribution and
administration expenses which primarily reflect lower shipping
and distribution costs as well as decreased marketing and sales
expenses. In addition, operating profit increased as a result of
decreased advertising expense.
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 and NERF 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 overall increase in segment net revenues
for 2008 was also due to increased revenues in
26
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, as well as increased sales of products
in the preschool category. Revenues from the girls toys
category decreased primarily as a result of decreased sales of
I-DOG, and to a lesser extent, 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. Decreases in
girls toys net revenues were partially offset by increased
sales as a result of the reintroduction of EASY-BAKE oven.
Revenues in 2008 were also negatively impacted by decreased
sales of TOOTH TUNES and POWER TOUR GUITAR, which are no longer
in the Companys product line.
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 made 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.
International
International segment net revenues for the year ended
December 27, 2009 decreased by 3% to $1,459,476 from
$1,499,334 in 2008. In 2009, net revenues were negatively
impacted by currency translation of approximately $64,500 as a
result of a stronger U.S. dollar. Excluding the unfavorable
impact of foreign exchange, International segment net revenues
increased 2% in local currency in 2009. The increase in local
currency net revenues was driven by increased sales in the
boys toys category, primarily as a result of increased
sales of TRANSFORMERS and G.I. JOE products, as well as
increased sales of NERF products. Increases in boys toys
net revenues were partially offset by lower revenues from
MARVEL, ACTION MAN, INDIANA JONES and STAR WARS products. Net
revenues in the girls toys category decreased primarily as
a result of decreased sales of MY LITTLE PONY and FURREAL
FRIENDS products, partially offset by increased sales of
LITTLEST PET SHOP products and sales of STRAWBERRY SHORTCAKE
products, which were reintroduced to the Companys line in
the second quarter of 2009. Net revenues in the preschool
category decreased primarily as a result of decreased revenues
from sales of IN THE NIGHT GARDEN and PLAYSKOOL products,
partially offset by increased revenues from sales of PLAY-DOH
products. Net revenues in the games and puzzles category
decreased slightly as a result of decreased sales of board
games. Net revenues in 2009 were also negatively impacted by
decreased sales of TOOTH TUNES products, which have been
discontinued in the Companys product line.
International segment operating profit decreased 2% to $162,159
in 2009 from $165,186 in 2008. Operating profit for the
International segment in 2009 was positively impacted by
approximately $9,500 due to the translation of foreign
currencies to the U.S. dollar. Increased local currency
gross profit in 2009 as a result of the increased net revenues
discussed above was more than offset by increased operating
expenses, including the impact of our investments in opening
offices in emerging international markets. In addition,
International segment operating profit in 2008 was positively
impacted by the recognition of a pension surplus in the United
Kingdom of approximately $6,000.
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 IN THE
NIGHT GARDEN and PLAYSKOOL products in the
27
preschool category. Net revenues in the games and puzzles
category decreased primarily as a result of decreased revenues
from MAGIC: THE GATHERING products, 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 partially offset by increased sales of STAR WARS
and NERF products and sales of INDIANA JONES products.
International segment net revenues in 2008 were also negatively
impacted by decreased sales of POWER TOUR GUITAR, which was no
longer in the Companys product line.
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.
Entertainment
and Licensing
During the second quarter of 2009, the Company changed the name
of its Other segment to the Entertainment and Licensing segment.
This segment includes the Companys lifestyle licensing,
digital gaming, movie, television and online entertainment
operations. The Entertainment and Licensing segments net
revenues for the year ended December 27, 2009 increased 44%
to $155,013 from $107,929 for the year ended December 28,
2008. The increase was primarily due to higher lifestyle and
digital gaming licensing revenues, primarily relating to
TRANSFORMERS and G.I. JOE licensed products.
Entertainment and Licensing segment operating profit increased
28% to $65,572 in 2009 from $51,035 in 2008. Operating profit
increased as a result of the higher revenues discussed above,
partially offset by increased selling, distribution and
administrative expenses which included approximately $7,200 in
transaction costs related to the Companys investment in
the joint venture with Discovery,
start-up
costs associated with the Companys television studio, as
well as increased intangible amortization and royalty expense.
While the Discovery joint venture is a component of our
television operations, the Companys 50% share in the
earnings from the joint venture are included in other (income)
expense and therefore are not a component of operating profit of
the segment.
The Entertainment and Licensing segments net revenues for
the year ended December 28, 2008 increased 24% to $107,929
from $87,245 for the year ended December 30, 2007. The
increase reflects licensing revenues related to the
Companys partnership with EA to develop digital games
based on the Companys intellectual property. EA began
introducing products based on the Companys intellectual
property in 2008. The increase in revenues from the introduction
of these products offset decreases in lifestyle licensing
revenues as a result of the significant licensing revenues in
2007 related to the TRANSFORMERS motion picture.
Entertainment and Licensing segment operating profit increased
31% to $51,035 in 2008 from $38,881 in 2007. Operating profit
for 2008 increased as a result of the higher revenues discussed
above, partially offset by increased selling, distribution and
administrative expenses.
Gross
Profit
The Companys gross profit margin increased to 58.8% for
the year ended December 27, 2009 from 57.9% in 2008. The
increase was partially due to a change in the mix of revenues
reflecting higher licensing revenues in 2009. In addition, the
increased gross profit reflects a change in product mix
primarily due to increased sales of entertainment-based products
in 2009 as compared to 2008. While gross profits of theatrical
entertainment-based products are generally higher than many of
the Companys other products, sales from these products,
including Company owned or controlled brands based on a movie
release, also incur royalty expense. Such royalties reduce the
benefit of these higher gross margins. Gross profits in 2009
were also
28
positively impacted by lower obsolescence charges. In addition,
gross profit in 2008 was negatively impacted by the incremental
promotional programs discussed below.
The Companys gross profit margin decreased to 57.9% for
the year ended December 28, 2008 from 58.9% in 2007. The
decrease was 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. 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.
Expenses
The Companys operating expenses, stated as percentages of
net revenues, are illustrated below for the three fiscal years
ended December 27, 2009:
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2009
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2008
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2007
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Amortization
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2.1
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%
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1.9
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%
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1.8
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Royalties
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8.1
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7.8
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8.2
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Research and product development
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4.5
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4.8
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4.4
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Advertising
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10.1
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11.3
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11.3
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Selling, distribution and administration
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19.5
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19.8
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19.7
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Amortization expense increased to $85,029 or 2.1% of net
revenues in 2009 compared to $78,265 or 1.9% of net revenues in
2008. The increase is primarily a result of accelerated
amortization related to a write-down of the carrying value of
certain property rights. 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 was primarily the
result of the acquisition of Cranium 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
acquisition and the purchase of TRIVIAL PURSUIT, respectively,
and are each being amortized over fifteen years. The Company
expects amortization expense to decrease in 2010 primarily as a
result of the property rights related to Wizards of the Coast
becoming fully amortized in the fourth quarter of 2009.
Accordingly, based on the Companys current property
rights, the Company expects amortization expense to be
approximately $49,000 in 2010.
Royalty expense increased to $330,651 or 8.1% of net revenues in
2009 compared to $312,986 or 7.8% of net revenues in 2008. The
increase in royalty expense is primarily the result of increased
sales of entertainment-driven products, including TRANSFORMERS
and G.I. JOE, partially offset by the impact of foreign
exchange. 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 was 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.
Research and product development expense decreased in 2009 to
$181,195 or 4.5% of net revenues from $191,424 or 4.8% of net
revenues in 2008. The decrease in 2009 primarily reflects an
effort to reduce the Companys overall SKU count and make
research and development spending more efficient as part of the
Companys ongoing cost control efforts. 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 reflected 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.
The Company expects research and product development expense to
increase in 2010, primarily as a result of costs associated with
the development of products related to the Companys
agreement with Sesame Workshop as well as other
entertainment-related properties.
29
Advertising expense decreased to $412,580 or 10.1% of net
revenues in 2009 compared to $454,612 or 11.3% of net revenues
in 2008. In years in which the Company has significant sales of
products related to major motion picture releases, such as in
2009, advertising expense as a percentage of revenue is
generally lower, as such products do not require the same level
of advertising that the Company spends on non-entertainment
based products. The decrease in advertising expense in 2009 also
reflects lower advertisement placement costs as well as the
impact of foreign exchange. 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 was primarily the result of higher spending to increase
awareness of the Companys brands.
Selling, distribution and administration expenses decreased to
$793,558 or 19.5% of net revenues in 2009, compared to $797,209
or 19.8% of net revenues in 2008. Absent the impact of foreign
exchange, selling, distribution and administration expenses
increased in 2009. Included in selling, distribution and
administration expenses in 2009 were approximately $7,200 in
transaction costs related to the Companys purchase of a
50% interest in the joint venture with Discovery. The increase
in selling, distribution and administration expense in 2009 also
reflects higher incentive compensation expense as well as costs
related to the start up of the Companys television studio
and continued investments in emerging markets. Selling,
distribution and administration expense in 2009 was also
positively impacted by lower shipping and distribution costs in
2009. In addition, selling, distribution and administration
expenses in 2008 were positively impacted by the recognition of
a pension surplus in the United Kingdom of approximately $6,000.
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 reflected
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.
Interest
Expense
Interest expense increased to $61,603 in 2009 from $47,143 in
2008. The increase in interest expense reflects both higher
outstanding borrowings and a higher average borrowing rate as a
result of the issuance of $425,000 of notes in May 2009. The
proceeds from the issuance of notes in May 2009 were primarily
used to purchase a 50% interest in the joint venture with
Discovery. Interest expense in 2009 also includes approximately
$4,000 in costs related to a short-term borrowing facility
commitment the Company entered into in April 2009 in connection
with the Companys anticipated investment in the joint
venture with Discovery. In addition, interest expense in 2009
includes amounts related to the Companys tax sharing
agreement with Discovery.
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
Income
Interest income was $2,858 in 2009 compared to $17,654 in 2008.
The decrease in interest income was primarily the result of
lower returns on invested cash as well as lower average invested
cash balances. Interest income was $17,654 in 2008 compared to
$29,973 in 2007. The decrease in interest income in 2008 from
2007 was primarily the result of lower returns on invested cash.
In addition, during a portion of 2007, 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.
30
Other
(Income) Expense, Net
Other (income) expense, net of $156 in 2009 compares to $23,752
in 2008. Other (income) expense, net in 2009 includes income of
$(3,856) representing the Companys 50% share in the
earnings of the joint venture with Discovery. The remainder of
the change in other (income) expense in 2009 as compared to 2008
primarily reflects the impact of foreign exchange gains and
losses.
Other (income) expense, net of $23,752 in 2008 compares to
$52,323 in 2007. In 2007 the major component of other (income)
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, expense related to the
change in fair value of these warrants was $44,370. 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 29.2% of pretax earnings in 2009
compared with 30.4% in 2008 and 28.0% in 2007. Income tax
expense for 2009 is net of a benefit of approximately $2,300 of
discrete tax events, primarily related to the expiration of
state statutes and settlement of various tax examinations in
multiple jurisdictions. Income tax expense for 2008 is net of a
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. Absent these items and potential
interest and penalties related to uncertain tax positions in
2009, 2008 and 2007, the effective tax rates would have been
29.0%, 32.8% and 30.5%, respectively. The decrease in the
adjusted tax rate from 32.8% in 2008 compared to 29.0% in 2009
primarily reflects the decision to provide for the repatriation
of a portion of 2008 international earnings to the U.S. The
increase in the adjusted rate to 32.8% in 2008 from 30.5% in
2007 primarily reflects the change in the mix of where the
Company earned its profits.
Liquidity
and Capital Resources
The Company has historically generated a significant amount of
cash from operations. In 2009, 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 2010, 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 2010,
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 27, 2009, cash and cash equivalents, net of
short-term borrowings, were $621,932 compared to $622,804 and
$764,257 at December 28, 2008 and December 30, 2007,
respectively. Hasbro generated $265,623, $593,185 and $601,794
of cash from its operating activities in 2009, 2008 and 2007,
respectively. The decrease in 2009 operating cash flows as
compared to 2008 primarily reflects an increase in accounts
31
receivable, primarily as a result of the Companys decision
not to utilize its securitization program at December 27,
2009. At December 28, 2008, $250,000 was utilized under the
program. In 2009, operating cash flows were also impacted by
increased royalty payments, including a $50,000 guaranteed
royalty payment to Marvel related to the extension of the
current agreement and a $25,000 guaranteed royalty payment to
the Discovery joint venture. Further, the decrease in inventory
had a positive impact on 2009 operating cash flows. In 2007
operating cash flows were impacted by royalty advances paid of
$70,000 related to the Marvel license. In addition,
2007 net earnings included non-cash expense of $44,370
related to the fair value adjustment of 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.
Accounts receivable increased to $1,038,802 at December 27,
2009 from $611,766 at December 28, 2008. The accounts
receivable balance at December 27, 2009 includes an
increase of approximately $33,200 as a result of a weaker
U.S. dollar at December 27, 2009 as compared to
December 28, 2008. Absent the effect of foreign exchange,
the increase in accounts receivable primarily reflects the
utilization of the Companys securitization program at
December 28, 2008 of $250,000. At December 27, 2009,
based on the Companys cash position and liquidity needs,
there was no utilization of the securitization program. The
increase in accounts receivable also reflects higher sales, and
the timing of those sales, in the fourth quarter of 2009 as
compared to 2008. 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 as compared to 2007. Absent
the impact of foreign exchange, accounts receivable increased
slightly. Fourth quarter days sales outstanding were
68 days in 2009 and 45 days in both 2008 and 2007.
Absent the impact of securitization, days sales outstanding
would have been 63 days in 2008 and 2007.
Inventories decreased to $207,895 at December 27, 2009
compared to $300,463 at December 28, 2008. The decrease
primarily reflects higher inventory levels at December 28,
2008 due to decreased sales in the fourth quarter of 2008 as
well as increased sales in the fourth quarter of 2009.
Inventories increased to $300,463 at December 28, 2008 from
$259,081 at December 30, 2007. The increase was primarily
related to lower revenues in the fourth quarter of 2008 as a
result of the weak retail environment and, to a lesser extent,
inventory balances related to newly opened operations in
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 at
December 28, 2008 compared to December 30, 2007.
Prepaid expenses and other current assets decreased to $162,290
at December 27, 2009 from $171,387 at December 28,
2008. The decrease is primarily due to a decrease in the value
of the Companys foreign currency contracts as a result of
the weakening U.S. dollar, partially offset by purchases of
short-term investments of $18,000 in 2009, which are reflected
as an investing activity in the accompanying consolidated
statement of cash flows. Prepaid expenses and other current
assets decreased to $171,387 at December 28, 2008 from
$199,912 at December 30, 2007. This decrease was 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 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 strengthened U.S. dollar at
December 28, 2008.
Accounts payable and accrued expenses increased to $801,775 at
December 27, 2009 from $792,306 at December 28, 2008.
The accounts payable and accrued expenses balance at
December 27, 2009 includes an increase of approximately
$17,700 as a result of a weaker U.S. dollar at
December 27, 2009 as compared to December 28, 2008.
Absent the impact of foreign exchange, accounts payable and
accrued expenses decreased approximately $8,300. Decreases in
accounts payable and accrued expenses in 2009 primarily relate
to decreased accrued pension benefits, as well as lower accounts
payable. These decreases were partially offset
32
by higher accrued payroll and management incentives at
December 27, 2009. 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 also included a decrease of approximately $64,300 as a
result of the currency impact of the stronger U.S. dollar
in 2008 compared to 2007.
Cash flows from investing activities were a net utilization of
$497,509, $271,920 and $112,465 in 2009, 2008 and 2007,
respectively. The 2009 utilization includes the Companys
$300,000 payment to Discovery for its 50% interest in the joint
venture, a payment of $45,000 to Lucas to extend the term of the
license agreement related to the STAR WARS brand and
approximately $26,500 used to acquire certain other intellectual
properties. 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
in January 2008. In 2007 the Company reacquired the remaining
digital gaming rights for its owned or controlled properties
held by Infogrames Entertainment SA (Infogrames), with the
exception of rights to DUNGEONS & DRAGONS, for an
acquisition price of $19,000 which 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. During 2009, the Company expended approximately
$104,000 on additions to its property, plant and equipment
compared to $117,000 during 2008 and $92,000 during 2007. Of
these amounts, 58% in 2009, 56% in 2008 and 61% in 2007 were for
purchases of tools, dies and molds related to the Companys
products. In 2010, the Company expects capital expenditures to
increase and be in the range of $120,000 to $140,000. During the
three years ended December 27, 2009, depreciation of plant
and equipment was $95,934, $87,873 and $88,804, 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 makes it necessary
for the Company to borrow higher amounts during the latter part
of the year. During 2009, 2008 and 2007, 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 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 previously was 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 27,
2009, the Company had availability under this program to sell
$300,000, of which no amounts were utilized. In 2010, the
facility was amended to extend the agreement through January
2011. Pursuant to this amendment, the limit will be $250,000 for
the extension period.
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 27, 2009. The Company had no borrowings
outstanding under its committed revolving credit facility at
December 27, 2009. However, letters of credit outstanding
under this facility as of
33
December 27, 2009 were approximately $1,400. Amounts
available and unused under the committed line at
December 27, 2009 were approximately $298,600. The Company
also has other uncommitted lines from various banks, of which
approximately $42,100 was utilized at December 27, 2009. Of
the amount utilized under the uncommitted lines, approximately
$13,500 and $28,600 represent outstanding borrowings and letters
of credit, respectively.
Net cash provided by financing activities was $236,779 in 2009.
Of this amount, $421,309 reflects net proceeds from the issuance
of long-term notes in May 2009. In addition, cash receipts from
the exercise of employee stock options in 2009 were $9,193.
These sources of cash were partially offset by $88,112, which
includes transaction costs, used to repurchase shares of the
Companys common stock. During 2009, the Company
repurchased 3,172 shares at an average price per share of
$28.67. At December 27, 2009, $161,434 remained under the
February 2008 authorization. Dividends paid were $111,458 in
2009 compared to $107,065 in 2008.
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. 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.
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.
At December 27, 2009, 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 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, 2008 and each of
the calendar quarters in 2009 this conversion feature was met
and the debentures were convertible throughout 2009. There were
no debentures converted during 2009. At December 31, 2009,
this conversion feature was met again and the bonds are
convertible through March 31, 2010 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
2009, based on the Companys common stock price, the
Company had the right to call the debentures under this
provision. As of December 27, 2009, the Company had 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. Historically, based on the Companys targeted
capital structure and the low cost of the debentures, when the
debentures have been
34
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 September 17, 2007, the
date of issuance of the notes. On the date of issuance, the
Companys ratings from Moodys Investor Services,
Inc., Standard & Poors Ratings Services and
Fitch Ratings were Baa2, BBB and BBB, respectively. There were
no changes to the Companys credit ratings from
Moodys Investor Services, Inc. or Standard &
Poors Rating Services from the date of issuance through
December 27, 2009. In March 2009, Fitch Ratings upgraded
the Companys credit rating to BBB+. 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 2.00%. 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 $425,000 notes due in 2014 bear interest at a rate of
6.125%, 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 reduced to Ba1, BB+, or BB+,
respectively, or below. From the date of issuance, May 13,
2009, through December 27, 2009, the Companys ratings
from Moodys Investor Services, Inc., Standard &
Poors Ratings Services and Fitch Ratings were Baa2, BBB,
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 2.00%. 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.
Including the debentures and notes described above, the Company
has remaining principal amounts of long-term debt at
December 27, 2009 of approximately $1,134,723 due at
varying times from 2014 through 2028. The Company also had
letters of credit and other similar instruments of approximately
$135,277 and purchase commitments of $251,917 outstanding at
December 27, 2009. Letters of credit and similar
instruments include $105,335 related to the defense of tax
assessments in Mexico. These assessments relate to transfer
pricing that the Company is defending and expects to be
successful in sustaining its position. In addition, the Company
is committed to guaranteed royalty and other contractual
payments of approximately $32,761 in 2010.
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
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.
35
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 2009, 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 goodwill impairment test was performed in
the fourth quarter of 2009 and the estimated fair value of the
Companys reporting units with allocated goodwill were
substantially in excess of their carrying value. Accordingly, no
impairment was indicated. The Companys annual impairment
tests related to intangible assets with indefinite lives were
also performed in the fourth quarter of 2009 and no impairments
were 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 27, 2009, the
Company has goodwill and intangible assets with indefinite lives
of $551,669 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
36
decrease estimated discounted cash flows and could increase or
decrease the related impairment charge. Intangible assets
covered under this policy were $478,829 at December 27,
2009. During 2009, the Company wrote down certain intangible
assets by approximately $6,700 to reflect revised expectations
for the related product lines.
Recoverability
of Royalty Advances and Commitments
The Companys ability to earn-out 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 27, 2009, the Company had $120,115 of prepaid
royalties, $43,115 of which are included in prepaid expenses and
other current assets and $77,000 of which are included in other
assets.
Pension
Costs and Obligations
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. 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 2009 pension expense for the U.S. plans was
8.50%. 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 2009 pension expense for U.S. plans by
approximately $560.
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 2009 pension expense averaged 6.20%. 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 2009 pension expense and the 2009 projected benefit
obligation by approximately $343 and $8,711, respectively.
Actual results that differ from the actuarial assumptions are
accumulated and, if outside a certain corridor, amortized over
future periods and, therefore affect recognized expense in
future periods. At December 27, 2009, the Companys
U.S. plans had unrecognized actuarial losses of $81,323
included in accumulated other comprehensive earnings related to
its defined benefit pension plans compared to $87,906 at
December 28, 2008. The decrease primarily reflects
amortization of these actuarial losses in 2009. Pension 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 or gains.
37
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 27, 2009, December 28, 2008 and
December 30, 2007 was $29,912, $35,221 and $29,402,
respectively. As of December 27, 2009, total unrecognized
stock-based compensation cost was approximately $31,684.
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. The weighted average
expected terms used were approximately 4 years for the 2009
grant and approximately 5 years for the 2008 and 2007 stock
option grants. These amounts are 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 2009, 2008 and 2007 stock
option grants were 1.87%, 2.71% and 4.79%, 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 2009, 2008 and 2007 stock option
grants were 3.52%, 2.95% and 1.97%, 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 36% for the 2009
stock option grant and 22% for the 2008 and 2007 stock option
grants. These amounts were derived using a combination of
historical price volatility and current 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. The increase in the stock
volatility assumption in 2009 reflects the increase in stock
market volatility at the time of the Companys 2009 grant.
In 2009, 2008 and 2007, 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 2011, December 2010 and
December 2009 for the 2009, 2008 and 2007 awards, respectively.
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 net 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.
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
38
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 2009
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 2009, the Company recorded
a total benefit of approximately $2,300 related to discrete tax
events primarily related to expiration of state statutes and
settlement of various tax examinations.
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 on 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 on 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. In 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. As the Company
believes that it will continue to be subject to the income-based
tax in 2010, 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 $1,134,723 in principal
amount of long-term debt outstanding at December 27, 2009.
Future payments required under these and other obligations as of
December 27, 2009 are as follows:
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|
|
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|
|
|
|
|
|
|
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Payments due by Fiscal Year
|
|
Certain Contractual Obligations
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|
2010
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|
|
2011
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|
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2012
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|
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2013
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|
|
2014
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Thereafter
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Total
|
|
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Long-term debt
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,000
|
|
|
|
709,723
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|
|
|
1,134,723
|
|
Interest payments on long-term debt
|
|
|
62,205
|
|
|
|
62,205
|
|
|
|
62,205
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|
|
|
62,205
|
|
|
|
49,189
|
|
|
|
215,785
|
|
|
|
513,794
|
|
Operating lease commitments
|
|
|
25,932
|
|
|
|
22,845
|
|
|
|
17,439
|
|
|
|
14,559
|
|
|
|
6,728
|
|
|
|
10,972
|
|
|
|
98,475
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|
Future minimum guaranteed contractual payments
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|
|
32,761
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|
|
|
36,804
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|
|
|
61,926
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|
|
|
85,000
|
|
|
|
14,375
|
|
|
|
100,625
|
|
|
|
331,491
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|
Tax sharing agreement
|
|
|
3,300
|
|
|
|
5,600
|
|
|
|
6,100
|
|
|
|
6,700
|
|
|
|
7,100
|
|
|
|
110,200
|
|
|
|
139,000
|
|
Purchase commitments
|
|
|
251,917
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,917
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|
|
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|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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$
|
376,115
|
|
|
|
127,454
|
|
|
|
147,670
|
|
|
|
168,464
|
|
|
|
502,392
|
|
|
|
1,147,305
|
|
|
|
2,469,400
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|
|
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|
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The Company has a liability at December 27, 2009, including
potential interest and penalties, of $115,795 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 the ultimate timing of payments related to
this liability. Accordingly, these amounts are not included in
the table above.
39
In connection with the Companys agreement to form a joint
venture with Discovery, the Company is obligated to make future
payments to Discovery under a tax sharing agreement. These
payments are contingent upon the Company having sufficient
taxable income to realize the expected tax deductions of certain
amounts related to the joint venture. Accordingly, estimates of
these amounts are 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 27,
2009, these debentures may be converted to shares at an initial
conversion price of $21.60 per share through March 31,
2010, 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 2012. In addition, in connection
with the extension of the Marvel license in 2009, the Company
may be subject to additional royalty guarantees totaling
$140,000 that are not included in the table above and that may
be payable during the next five to six years contingent upon the
quantity and types of theatrical movie releases.
In addition to the amounts included in the table above, the
Company expects to make contributions totaling approximately
$5,100 related to its unfunded U.S. and other International
pension plans in 2010. The Company also has letters of credit
and related instruments of approximately $135,277 at
December 27, 2009.
The Company believes that cash from operations and funds
available through its lines of credit and accounts receivable
securitization program will allow the Company to meet these and
other obligations described above.
Financial
Risk Management
The Company is exposed to market risks attributable to
fluctuations in foreign currency exchange rates primarily as the
result of sourcing products priced in U.S. dollars, Hong
Kong dollars and Euros while marketing those products in more
than twenty currencies. Results of operations may be affected
primarily by changes in the value of the U.S. dollar, Hong
Kong dollar, Euro, British pound, 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 $44,200
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-denominated
revenues and expenses. The Company does not hedge against
translation impacts of foreign exchange. From time to time,
affiliates of the Company may make or receive intercompany loans
in currencies other than their functional currency. The Company
manages this exposure at the time the loan is made by using
foreign exchange contracts.
40
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 27, 2009, these contracts had unrealized gains of
$22,548, of which $8,839 are recorded in prepaid expenses and
other current assets and $13,709 are recorded in other assets.
Included in accumulated other comprehensive earnings at
December 27, 2009 are deferred gains of $20,410, net of
tax, related to these derivatives.
At December 27, 2009, the Company had fixed rate long-term
debt, excluding fair value adjustments, of $1,134,723. During
the fourth quarter of 2009, the Company entered into several
interest rate swap agreements, with a total notional amount of
$400,000, to adjust the amount of long-term debt subject to
fixed interest rates. The interest rate swaps are matched with
specific long-term debt issues and are designated and effective
as hedges of the change in the fair value of the associated
debt. Changes in fair value of these contracts are wholly offset
in earnings by changes in the fair value of the related
long-term debt. At December 27, 2009, the fair value of
these contracts was a liability of $2,725, which is included in
other liabilities, with a corresponding fair value adjustment to
decrease long-term debt. Changes in interest rates affect the
fair value of fixed rate debt not hedged by interest rate swap
agreements while affecting the earnings and cash flows of the
long-term debt hedged by the interest rate swaps. 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 $55,100 or
$50,800, respectively. A hypothetical one-quarter percentage
point change in interest rates would increase or decrease both
2009 pretax earnings and cash flows by $189.
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 54% of its
consolidated net revenues in 2009 and 52% of its consolidated
net revenues in 2008 and 2007. 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 2009, approximately 65% 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 2009 the Company had products related to the
mid-year major motion picture releases of TRANSFORMERS:
REVENGE OF THE FALLEN, G.I. JOE: THE RISE OF COBRA
and X-MEN ORIGINS: WOLVERINE. In 2008 the Company had
products related to the mid-year major motion picture releases
of IRON MAN, 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 future revenues. In
addition, the bankruptcy or other lack of success of one of the
Companys significant retailers could negatively impact the
Companys future revenues.
41
The effect of inflation on the Companys operations during
2009 was not significant and the Company will continue its
policy of monitoring costs and adjusting prices, accordingly.
New
Accounting Pronouncements
In June 2009 the FASB revised accounting standards related to
the transfer of financial assets. These revisions seek to
improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity
provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a
transferors continuing involvement, if any, in transferred
financial assets. These revisions also eliminate the concept of
a qualifying special-purpose entity, and require such entities
to be evaluated for consolidation in accordance with the
applicable consolidation guidance. The requirements of these
revised accounting standards are effective for fiscal years and
interim periods beginning after November 15, 2009. As a
result of the adoption of these new accounting standards in
2010, the Company will account for all sales of accounts
receivable under its securitization facility in 2010 as
collateralized borrowings. The accounts receivable balances will
remain on the Companys balance sheet and proceeds from the
sales of the receivables will be recorded as short-term debt.
In June 2009 the FASB amended accounting standards related to
the consolidation of variable interest entities. These
amendments require an enterprise to perform an analysis to
determine whether the enterprises variable interest or
interests give it a controlling financial interest in a variable
interest entity. The analysis identifies the primary beneficiary
of a variable interest entity as the enterprise that has both
(i) the power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance and (ii) the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. The amended standards also require
ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. At December 27,
2009, the Company has an ownership interest in one variable
interest entity, the joint venture with Discovery. See the
relevant discussion in note 5 to the accompanying
consolidated financial statements. Other than as discussed in
note 5, the Company does not expect the adoption of the
amended standards to have a material impact on its consolidated
balance sheet or results of operations.
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.
42
|
|
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 27, 2009 and
December 28, 2008, 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 27, 2009. 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 27, 2009 and December 28, 2008, and the
results of their operations and their cash flows for each of the
fiscal years in the three-year period ended December 27,
2009, 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 27, 2009, 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, 2010 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
Providence, Rhode Island
February 24, 2010
43
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 27, 2009 and December 28, 2008
(Thousands of Dollars Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
636,045
|
|
|
|
630,390
|
|
Accounts receivable, less allowance for doubtful accounts of
$32,800 in 2009 and $32,400 in 2008
|
|
|
1,038,802
|
|
|
|
611,766
|
|
Inventories
|
|
|
207,895
|
|
|
|
300,463
|
|
Prepaid expenses and other current assets
|
|
|
162,290
|
|
|
|
171,387
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,045,032
|
|
|
|
1,714,006
|
|
Property, plant and equipment, net
|
|
|
220,706
|
|
|
|
211,707
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
475,931
|
|
|
|
474,497
|
|
Other intangibles, net
|
|
|
554,567
|
|
|
|
568,412
|
|
Other
|
|
|
600,656
|
|
|
|
200,175
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,631,154
|
|
|
|
1,243,084
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,896,892
|
|
|
|
3,168,797
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
14,113
|
|
|
|
7,586
|
|
Accounts payable
|
|
|
173,388
|
|
|
|
184,453
|
|
Accrued liabilities
|
|
|
628,387
|
|
|
|
607,853
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
815,888
|
|
|
|
799,892
|
|
Long-term debt
|
|
|
1,131,998
|
|
|
|
709,723
|
|
Other liabilities
|
|
|
354,234
|
|
|
|
268,396
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,302,120
|
|
|
|
1,778,011
|
|
|
|
|
|
|
|
|
|
|
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 2009
and 2008
|
|
|
104,847
|
|
|
|
104,847
|
|
Additional paid-in capital
|
|
|
467,183
|
|
|
|
450,155
|
|
Retained earnings
|
|
|
2,720,549
|
|
|
|
2,456,650
|
|
Accumulated other comprehensive earnings
|
|
|
58,631
|
|
|
|
62,256
|
|
Treasury stock, at cost, 72,597,140 shares in 2009 and
70,465,216 shares in 2008
|
|
|
(1,756,438
|
)
|
|
|
(1,683,122
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,594,772
|
|
|
|
1,390,786
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
3,896,892
|
|
|
|
3,168,797
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended in December
(Thousands of Dollars Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues
|
|
$
|
4,067,947
|
|
|
|
4,021,520
|
|
|
|
3,837,557
|
|
Cost of sales
|
|
|
1,676,336
|
|
|
|
1,692,728
|
|
|
|
1,576,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,391,611
|
|
|
|
2,328,792
|
|
|
|
2,260,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
85,029
|
|
|
|
78,265
|
|
|
|
67,716
|
|
Royalties
|
|
|
330,651
|
|
|
|
312,986
|
|
|
|
316,807
|
|
Research and product development
|
|
|
181,195
|
|
|
|
191,424
|
|
|
|
167,194
|
|
Advertising
|
|
|
412,580
|
|
|
|
454,612
|
|
|
|
434,742
|
|
Selling, distribution and administration
|
|
|
793,558
|
|
|
|
797,209
|
|
|
|
755,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,803,013
|
|
|
|
1,834,496
|
|
|
|
1,741,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
588,598
|
|
|
|
494,296
|
|
|
|
519,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
61,603
|
|
|
|
47,143
|
|
|
|
34,618
|
|
Interest income
|
|
|
(2,858
|
)
|
|
|
(17,654
|
)
|
|
|
(29,973
|
)
|
Other (income) expense, net
|
|
|
156
|
|
|
|
23,752
|
|
|
|
52,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
58,901
|
|
|
|
53,241
|
|
|
|
56,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
529,697
|
|
|
|
441,055
|
|
|
|
462,382
|
|
Income taxes
|
|
|
154,767
|
|
|
|
134,289
|
|
|
|
129,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
374,930
|
|
|
|
306,766
|
|
|
|
333,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.69
|
|
|
|
2.18
|
|
|
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.48
|
|
|
|
2.00
|
|
|
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
|
|
$
|
0.80
|
|
|
|
0.80
|
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended in December
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
374,930
|
|
|
|
306,766
|
|
|
|
333,003
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of plant and equipment
|
|
|
95,934
|
|
|
|
87,873
|
|
|
|
88,804
|
|
Amortization
|
|
|
85,029
|
|
|
|
78,265
|
|
|
|
67,716
|
|
Change in fair value of liabilities potentially
|
|
|
|
|
|
|
|
|
|
|
|
|
settleable in common stock
|
|
|
|
|
|
|
|
|
|
|
44,370
|
|
Deferred income taxes
|
|
|
19,136
|
|
|
|
24,994
|
|
|
|
37,578
|
|
Stock-based compensation
|
|
|
29,912
|
|
|
|
35,221
|
|
|
|
29,402
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(422,560
|
)
|
|
|
(14,220
|
)
|
|
|
(74,941
|
)
|
Decrease (increase) in inventories
|
|
|
105,329
|
|
|
|
(69,871
|
)
|
|
|
(44,267
|
)
|
Decrease in prepaid expenses and other current assets
|
|
|
35,702
|
|
|
|
74,734
|
|
|
|
79,247
|
|
Increase in accounts payable and accrued liabilities
|
|
|
5,966
|
|
|
|
56,143
|
|
|
|
64,936
|
|
Other, including long-term advances
|
|
|
(63,755
|
)
|
|
|
13,280
|
|
|
|
(24,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
265,623
|
|
|
|
593,185
|
|
|
|
601,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(104,129
|
)
|
|
|
(117,143
|
)
|
|
|
(91,532
|
)
|
Investments and acquisitions, net of cash acquired
|
|
|
(371,482
|
)
|
|
|
(154,757
|
)
|
|
|
(18,000
|
)
|
Purchases of short-term investments
|
|
|
(18,000
|
)
|
|
|
(42,000
|
)
|
|
|
(43,700
|
)
|
Proceeds from sales of short-term investments
|
|
|
|
|
|
|
42,000
|
|
|
|
43,700
|
|
Other
|
|
|
(3,898
|
)
|
|
|
(20
|
)
|
|
|
(2,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash utilized by investing activities
|
|
|
(497,509
|
)
|
|
|
(271,920
|
)
|
|
|
(112,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from borrowings with original maturities of more
than three months
|
|
|
421,309
|
|
|
|
|
|
|
|
346,009
|
|
Repayments of borrowings with original maturities of more than
three months
|
|
|
|
|
|
|
(135,092
|
)
|
|
|
|
|
Net proceeds (repayments) of other short-term borrowings
|
|
|
4,114
|
|
|
|
(645
|
)
|
|
|
(1,150
|
)
|
Purchases of common stock
|
|
|
(88,112
|
)
|
|
|
(360,244
|
)
|
|
|
(584,349
|
)
|
Purchase of Lucas warrants
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
Stock option transactions
|
|
|
9,193
|
|
|
|
120,895
|
|
|
|
82,661
|
|
Excess tax benefits from stock-based compensation
|
|
|
1,733
|
|
|
|
24,760
|
|
|
|
17,009
|
|
Dividends paid
|
|
|
(111,458
|
)
|
|
|
(107,065
|
)
|
|
|
(94,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (utilized) by financing activities
|
|
|
236,779
|
|
|
|
(457,391
|
)
|
|
|
(433,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
762
|
|
|
|
(7,942
|
)
|
|
|
3,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
5,655
|
|
|
|
(144,068
|
)
|
|
|
59,058
|
|
Cash and cash equivalents at beginning of year
|
|
|
630,390
|
|
|
|
774,458
|
|
|
|
715,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
636,045
|
|
|
|
630,390
|
|
|
|
774,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
54,578
|
|
|
|
50,696
|
|
|
|
27,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
107,948
|
|
|
|
49,152
|
|
|
|
123,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See note (12) for disclosure of financing activities not
affecting cash.
See accompanying notes to consolidated financial statements.
46
HASBRO,
INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Shareholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
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
|
|
Adoption of pension measurement date change
|
|
|
|
|
|
|
|
|
|
|
(2,143
|
)
|
|
|
7,779
|
|
|
|
|
|
|
|
5,636
|
|
Adoption of uncertain tax position standards
|
|
|
|
|
|
|
|
|
|
|
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 expense
|
|
|
|
|
|
|
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 expense
|
|
|
|
|
|
|
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
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
374,930
|
|
|
|
|
|
|
|
|
|
|
|
374,930
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,625
|
)
|
|
|
|
|
|
|
(3,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371,305
|
|
Stock-based compensation transactions
|
|
|
|
|
|
|
(12,724
|
)
|
|
|
|
|
|
|
|
|
|
|
17,518
|
|
|
|
4,794
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,994
|
)
|
|
|
(90,994
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
29,752
|
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
29,912
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(111,031
|
)
|
|
|
|
|
|
|
|
|
|
|
(111,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 27, 2009
|
|
$
|
104,847
|
|
|
|
467,183
|
|
|
|
2,720,549
|
|
|
|
58,631
|
|
|
|
(1,756,438
|
)
|
|
|
1,594,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
47
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. Prior to 2009 the
Company had no equity method investments that were material to
the consolidated financial statements. During the year ended
December 27, 2009 the Company purchased a 50% interest in a
joint venture with Discovery Communications, Inc. that is
accounted for under the equity method. See note 5 for
additional information. 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.
Fiscal
Year
Hasbros fiscal year ends on the last Sunday in December.
Each of the fiscal years in the three-year period ended
December 27, 2009 were fifty-two week periods.
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 consist of investments in publicly-traded
securities as well as investments in private investment funds.
These investments are classified as
available-for-sale
and recorded at fair value. For publicly traded securities,
which are included in other assets on the accompanying
consolidated balance sheet, unrealized gains or losses, net of
tax, are 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. For investments in private funds, which are included
in prepaid and other current assets on the accompanying
consolidated balance sheet, the Company has selected the fair
value option which requires the Company to record the unrealized
gains and losses on these investments in the consolidated
statements of operations at the time they occur.
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.
48
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 is adjusted to reflect current risk assessments.
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 both December 27, 2009 and December 28, 2008,
finished goods comprised 93% of inventories.
Equity
Method Investments
For the Companys equity method investments, only the
Companys investment in and amounts due to and from the
equity method investments are included on the consolidated
balance sheet and only the Companys share of the equity
method investments earnings (losses) is included on the
consolidated statement of operations. Dividends, cash
distributions, loans or other cash received from the equity
method investments, additional cash investments, loan repayments
or other cash paid to the investee are included in the
consolidated statement of cash flows.
The Company reviews its investments in equity method investments
for impairment on a periodic basis. If it has been determined
that the equity investment is less than its related fair value
and that this decline is
other-than-temporary,
the carrying value of the investment is adjusted downward to
reflect these declines in value. The Company has one equity
method investment that is material to the consolidated financial
statements, its 50% interest in a joint venture with Discovery
Communications, Inc. See note 5 for additional information.
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 on 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.
49
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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 27,
2009, approximately 14% of other intangibles relate to rights
acquired in connection with a major entertainment property and
are being amortized in proportion to projected sales of the
licensed products over the contract life.
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 in 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.
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, short-term borrowings,
accounts payable and accrued liabilities. At December 27,
2009, the carrying cost of these instruments approximated their
fair value. The Companys financial instruments at
December 27, 2009 also include long-term borrowings (see
note 8 for carrying cost and related fair values) as well
as certain assets and liabilities measured at fair value (see
notes 8, 11 and 15).
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. In 2009 and prior, Hasbro accounted for
the securitization of trade accounts receivable as a sale in
accordance with then current accounting standards. As a result,
the related receivables were removed from the consolidated
balance sheet.
In 2010, the Company adopted the revised accounting standards
related to the transfer of financial assets. As a result of the
adoption of these standards, the Company will be required to
account for the sale of the receivables under the securitization
facility as a secured borrowing. The receivables sold will
continue to be included in accounts receivable until collection.
The proceeds from utilization of the facility will be recorded
as short-term debt.
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.
50
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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 of 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 non-recoverable portion of the guaranty is charged
to expense at that time.
Advertising
Production costs of commercials 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.
Film
and Programming Costs
In 2009, the Company incurred certain costs to commence the
production of films and television programming. These costs are
capitalized by the Company as they are incurred and will be
amortized based on the proportion of the films or
programs revenues recognized for such period to the
estimated remaining ultimate revenues related to the film or
program. These costs are reported at the lower of cost, less
accumulated amortization, or fair value, and reviewed for
impairment annually or when an event occurs that indicates that
an impairment may exist. At December 27, 2009, the Company
had approximately $5,300 of such costs recorded in other assets.
There was no amortization or impairment of such costs in 2009.
Shipping
and Handling
Hasbro expenses costs related to the shipment and handling of
goods to customers as incurred. For 2009, 2008, and 2007, these
costs were $155,496, $178,738 and $167,868, 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.
51
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The Company uses 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. The Company records potential interest and
penalties on uncertain tax positions as a component of income
tax expense.
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
Pension expense and related amounts in the consolidated balance
sheet are based on actuarial computations of current and future
benefits. The Companys policy is to fund amounts which are
required by applicable regulations and which are tax deductible.
In 2010, the Company expects to contribute approximately $5,100
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 business 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.
52
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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.
The Company also uses interest rate swap agreements to adjust
the amount of long-term debt subject to fixed interest rates.
The interest rate swaps are matched with specific fixed rate
long-term debt obligations and are designated as fair value
hedges of the change in fair value of the related debt
obligations. These agreements are recorded at their fair value
as an asset or liability. Gains and losses on these contracts
are included in the consolidated statements of operations and
are wholly offset by changes in the fair value of the related
long-term debt. These hedges are considered to be perfectly
effective under current accounting guidance. The interest rate
swap contracts are with a number of major financial institutions
in order to minimize counterparty credit risk. The Company
believes that it is unlikely that any of its counterparties will
be unable to perform under the terms of the contracts.
Accounting
for Stock-Based Compensation
The Company has a stock-based employee 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. 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 12 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 during 2007 also may
have included shares potentially issuable to settle liabilities.
Options totaling 5,784, 3,491 and 3,250 for 2009, 2008 and 2007,
respectively, were excluded from the calculation of diluted
earnings per share because to include them would have been
antidilutive.
53
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
A reconciliation of net earnings and average number of shares
for each of the three fiscal years ended December 27, 2009
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Net earnings
|
|
$
|
374,930
|
|
|
|
374,930
|
|
|
|
306,766
|
|
|
|
306,766
|
|
|
|
333,003
|
|
|
|
333,003
|
|
Interest expense on contingent convertible debentures due 2021,
net of tax
|
|
|
|
|
|
|
4,328
|
|
|
|
|
|
|
|
4,238
|
|
|
|
|
|
|
|
4,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
374,930
|
|
|
|
379,258
|
|
|
|
306,766
|
|
|
|
311,004
|
|
|
|
333,003
|
|
|
|
337,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
|
139,487
|
|
|
|
139,487
|
|
|
|
140,877
|
|
|
|
140,877
|
|
|
|
156,054
|
|
|
|
156,054
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent convertible debentures due 2021
|
|
|
|
|
|
|
11,566
|
|
|
|
|
|
|
|
11,566
|
|
|
|
|
|
|
|
11,568
|
|
Options, warrants, and other share-based awards
|
|
|
|
|
|
|
1,727
|
|
|
|
|
|
|
|
2,787
|
|
|
|
|
|
|
|
3,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent shares
|
|
|
139,487
|
|
|
|
152,780
|
|
|
|
140,877
|
|
|
|
155,230
|
|
|
|
156,054
|
|
|
|
171,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
$
|
2.69
|
|
|
|
2.48
|
|
|
|
2.18
|
|
|
|
2.00
|
|
|
|
2.13
|
|
|
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net earnings per share calculations for each of the three
years ended December 27, 2009 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 8 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 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 year ended
December 30, 2007 the warrants had a more dilutive impact
on earnings per share assuming they were treated as a liability
and no adjustment to net earnings or equivalent shares was
required.
Subsequent
Events
In May 2009, the Financial Accounting Standard Board
(FASB) established general standards of accounting
for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available
to be issued. These standards require the disclosure of the date
through which subsequent events have been evaluated and whether
that date is the date the financial statements were issued or
were available to be issued. The adoption did not have an impact
on the Companys statements of operations or statement of
financial position. The Company has evaluated all subsequent
events that occurred through February 24, 2010, the date
the financial statements were issued.
54
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
|
|
(2)
|
Other
Comprehensive Earnings
|
The Companys other comprehensive earnings (loss) for the
years 2009, 2008 and 2007 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Foreign currency translation adjustments
|
|
$
|
23,782
|
|
|
|
(33,555
|
)
|
|
|
35,888
|
|
Changes in value of
available-for-sale
securities, net of tax
|
|
|
504
|
|
|
|
(3,037
|
)
|
|
|
221
|
|
Gain (loss) on cash flow hedging activities, net of tax
|
|
|
(24,446
|
)
|
|
|
73,184
|
|
|
|
(15,851
|
)
|
Changes in unrecognized pension and postretirement amounts, net
of tax
|
|
|
8,356
|
|
|
|
(52,582
|
)
|
|
|
27,393
|
|
Reclassifications to earnings, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gains) losses on cash flow hedging activities
|
|
|
(18,657
|
)
|
|
|
1,409
|
|
|
|
6,887
|
|
(Gain) loss on
available-for-sale
securities
|
|
|
147
|
|
|
|
897
|
|
|
|
(664
|
)
|
Amortization of unrecognized pension and postretirement amounts
|
|
|
6,689
|
|
|
|
1,002
|
|
|
|
2,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$
|
(3,625
|
)
|
|
|
(12,682
|
)
|
|
|
55,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, 2008 and 2007, net gains (losses) on cash flow hedging
activities reclassified to earnings, net of tax, included gains
(losses) of $(679), $1,292 and $(37), respectively, as a result
of hedge ineffectiveness.
The related tax benefit (expense) of other comprehensive
earnings items was $1,322, $16,022, and $(16,064) for the years
2009, 2008 and 2007, respectively. Income tax expense (benefit)
related to reclassification adjustments from other comprehensive
earnings of $(331), $763 and $1,412 in 2009, 2008 and 2007,
respectively, were included in these amounts.
At December 27, 2009, the Company had remaining deferred
gains on hedging instruments, net of tax, of $20,410 in AOCE.
These instruments hedge inventory purchased during the fourth
quarter of 2009 or forecasted to be purchased during 2010 and
2011 and intercompany expenses and royalty payments expected to
be paid or received during 2010 and 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 27, 2009, the Company expects approximately
$7,600 to be reclassified to the consolidated statement of
operations within the next 12 months. However, the amount
ultimately realized in earnings is dependent on the fair value
of the contracts on the settlement dates.
In the first quarter of 2007, 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.
55
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 27, 2009 and December 28, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency translation adjustments
|
|
$
|
95,099
|
|
|
|
71,317
|
|
Unrealized losses on
available-for-sale
securities, net of tax
|
|
|
|
|
|
|
(651
|
)
|
Gain on cash flow hedging activities, net of tax
|
|
|
20,410
|
|
|
|
63,513
|
|
Unrecognized pension and postretirement amounts, net of tax
|
|
|
(56,878
|
)
|
|
|
(71,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,631
|
|
|
|
62,256
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and improvements
|
|
$
|
6,766
|
|
|
|
6,578
|
|
Buildings and improvements
|
|
|
199,595
|
|
|
|
195,520
|
|
Machinery and equipment
|
|
|
393,678
|
|
|
|
358,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,039
|
|
|
|
560,627
|
|
Less accumulated depreciation
|
|
|
431,564
|
|
|
|
403,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,475
|
|
|
|
157,545
|
|
Tools, dies and molds, net of depreciation
|
|
|
52,231
|
|
|
|
54,162
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
220,706
|
|
|
|
211,707
|
|
|
|
|
|
|
|
|
|
|
Expenditures for maintenance and repairs which do not materially
extend the life of the assets are charged to operations as
incurred.
|
|
(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 27,
2009, no such events occurred. The Company completed its annual
impairment tests in the fourth quarters of 2009, 2008 and 2007
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 impairment testing, these assets are allocated to
the reporting units within the
56
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
Companys operating segments. Changes in the carrying
amount of goodwill, by operating segment, for the years ended
December 27, 2009 and December 28, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment and
|
|
|
|
|
|
|
U.S. and Canada
|
|
|
International
|
|
|
Licensing
|
|
|
Total
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2008
|
|
$
|
300,496
|
|
|
|
174,001
|
|
|
|
|
|
|
|
474,497
|
|
Foreign exchange translation
|
|
|
|
|
|
|
1,593
|
|
|
|
|
|
|
|
1,593
|
|
Disposal
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(159
|
)
|
Reallocation
|
|
|
(3,518
|
)
|
|
|
(2,978
|
)
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2009
|
|
$
|
296,978
|
|
|
|
172,457
|
|
|
|
6,496
|
|
|
|
475,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 connection with
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 27, 2009 and December 28, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquired product rights
|
|
$
|
1,099,541
|
|
|
|
1,080,628
|
|
Licensed rights of entertainment properties
|
|
|
256,555
|
|
|
|
211,555
|
|
Accumulated amortization
|
|
|
(877,267
|
)
|
|
|
(799,509
|
)
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets
|
|
|
478,829
|
|
|
|
492,674
|
|
Product rights with indefinite lives
|
|
|
75,738
|
|
|
|
75,738
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
554,567
|
|
|
|
568,412
|
|
|
|
|
|
|
|
|
|
|
In May 2009 the Company amended its license agreement with Lucas
Licensing, Ltd. (Lucas) related to the STAR WARS
brand. The amendment included the extension of the term of the
license for an additional two years, from the end of 2018 to the
end of 2020. In connection with the extension of the license
rights, $45,000 was recorded as an intangible asset during 2009
and will be amortized over the term of the extension. The
amendment also provided for the settlement of certain royalty
audit issues, primarily related to contractual interpretations
associated with the computation of royalties dating back to
1999, and the clarification of certain terms and interpretations
of the agreement on a prospective basis through the end of the
term, including the scope of licensed rights to future developed
properties by Lucas.
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
57
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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.
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:
|
|
|
|
|
2010
|
|
$
|
49,000
|
|
2011
|
|
|
49,000
|
|
2012
|
|
|
52,000
|
|
2013
|
|
|
50,000
|
|
2014
|
|
|
49,000
|
|
|
|
(5)
|
Equity
Method Investment
|
During 2009, the Company entered into an agreement to form a
joint venture with Discovery Communications, Inc.
(Discovery) to create a television network in the
United States dedicated to high-quality childrens and
family entertainment and educational programming. The
transaction closed in May 2009 with the Companys purchase
of a 50% interest in the joint venture, DHJV Company LLC
(DHJV), which owns the DISCOVERY KIDS network in the
United States. The Company purchased its 50% share in DHJV for a
payment of $300,000 and certain future payments based on the
value of certain tax benefits expected to be received by the
Company. The present value of the expected future payments at
the acquisition date totaled approximately $67,900 and was
recorded as a component of the Companys investment in the
joint venture. The balance of the associated liability,
including imputed interest, was $71,234 at December 27,
2009 and is included as a component of other liabilities in the
accompanying balance sheet.
Voting control of the joint venture is shared
50/50
between the Company and Discovery. However, the Company believes
that the joint venture qualifies as a variable interest entity
pursuant to current accounting standards, and that it qualifies
as the primary beneficiary, which would result in the Company
consolidating the joint venture. In June 2009, the FASB revised
the accounting guidance related to variable interest entity
consolidation. The revised guidance is effective for the Company
at the beginning of fiscal 2010. Under the revised guidance, the
Company has determined that it does not meet the control
requirements to consolidate the joint venture, and would be
required to deconsolidate DHJV and utilize the equity method to
account for its investment at the adoption date. The Company has
elected to use the equity method in 2009 for financial statement
presentation of the joint venture as it has determined that the
difference between using consolidation and the equity method in
2009 is not material to the overall presentation of the
financial statements. Additionally, there is no impact on net
earnings or earnings per share. The Companys share in the
earnings of the joint venture for the year ended
December 27, 2009 totaled $3,856 of income and is included
as a component of other (income) expense in the accompanying
consolidated statements of operations.
The Company has entered into a license agreement with the joint
venture that will require the payment of royalties by the
Company to the joint venture based on a percentage of revenue
derived from products related to television shows broadcast by
the joint venture. The license agreement includes a minimum
royalty guarantee of $125,000, payable in 5 annual installments
of $25,000 per year, commencing in 2009, which can be earned out
over approximately a
10-year
period. During 2009, the Company paid the first annual
installment of $25,000, which is included in other assets on the
consolidated balance sheet at December 27, 2009. The
Company and the joint venture are also parties to an agreement
under which the Company will
58
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
provide the joint venture with an exclusive first look in the
U.S. to license certain types of programming developed by
the Company based on its intellectual property. In the event the
joint venture licenses the programming from the Company to air
on the network, the joint venture is required to pay the Company
a license fee.
The assets of the joint venture at inception consisted of
goodwill and intangibles which were measured at fair value at
inception. Intangible assets are primarily comprised of cable
affiliate relationships, which are being amortized on a straight
line basis over 30 years, and programming costs, which are
being amortized primarily over 4 years on an accelerated
basis. Hasbros share of the assets underlying its
investment at inception totaled $142,577 of goodwill, $211,850
of cable affiliate relationships, $12,400 of programming costs,
and $1,100 of other intangibles. Amortization of the intangible
assets is recorded in the results of the joint venture and,
accordingly, the Companys share is included in its share
of the joint venture earnings which is a component of other
(income) expense. As of December 27, 2009, the
Companys interest in the joint venture totaled $371,783
and is a component of other assets.
As of December 27, 2009, DHJV had current assets of
$51,674, non-current assets of $696,842 and current liabilities
of $27,209. Net income of the joint venture for the period from
inception to December 27, 2009 was $7,711.
|
|
(6)
|
Financing
Arrangements
|
Short-Term
Borrowings
At December 27, 2009, Hasbro had available an unsecured
committed line and unsecured uncommitted lines of credit from
various banks approximating $300,000 and $184,300, respectively.
A significant portion of the short-term borrowings outstanding
at the end of 2009 and 2008 represent borrowings made under, or
supported by, these lines of credit. The weighted average
interest rates of the outstanding borrowings as of
December 27, 2009 and December 28, 2008 were 1.23% and
10.7%, respectively. Borrowings under the lines of credit were
made by certain international affiliates of the Company on terms
and at interest rates generally extended to companies of
comparable creditworthiness in those markets. The Company had no
borrowings outstanding under its committed line of credit at
December 27, 2009. During 2009, Hasbros working
capital needs were fulfilled by cash generated from operations,
borrowings under lines of credit, and the Companys
accounts receivable securitization program.
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 27, 2009.
The Company pays a commitment fee (0.09% as of December 27,
2009) 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 27, 2009, the interest rate under the facility was
equal to LIBOR plus 0.40% or Prime.
Securitization
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
59
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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 increased to $300,000.
Subsequent to December 27, 2009, in January 2010, the
agreement was amended on a prospective basis to eliminate the
additional $50,000 available from the first day of the October
fiscal month through the last day of the following January
fiscal month. Under the terms of the agreement, new receivables
are added to the pool as collections reduce previously held
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 27, 2009, there were no amounts utilized
under the receivables facility. At December 28, 2008 the
utilization of the receivables facility was $250,000. As of
December 27, 2009 the Company had $300,000 available to
sell under the facility. The transactions are accounted for as
sales under current accounting guidance. During 2009, 2008 and
2007, the loss on the sale of receivables totaled $2,514, $5,302
and $7,982, 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 27, 2009 was approximately
1.03%.
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 generally do not
significantly impact fair value.
In 2010, the Company adopted revised accounting standards
related to the transfer of financial assets. As a result of the
adoption of these standards, the Company will be required to
account for the sale of the receivables under the securitization
facility as a secured borrowing. The receivables sold will
continue to be included in accounts receivable until collection.
The proceeds from utilization of the facility will be recorded
as short-term debt.
Components of accrued liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Royalties
|
|
$
|
141,143
|
|
|
|
144,566
|
|
Advertising
|
|
|
92,614
|
|
|
|
92,852
|
|
Payroll and management incentives
|
|
|
91,298
|
|
|
|
65,171
|
|
Other
|
|
|
303,332
|
|
|
|
305,264
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
628,387
|
|
|
|
607,853
|
|
|
|
|
|
|
|
|
|
|
60
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:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
6.125% Notes Due 2014
|
|
$
|
425,000
|
|
|
|
|
|
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
|
|
|
1,134,723
|
|
|
|
709,723
|
|
Fair value adjustment related to interest rate swaps
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,131,998
|
|
|
|
709,723
|
|
|
|
|
|
|
|
|
|
|
In May 2009 the Company issued $425,000 of Notes that are due in
2014 (the Notes). The Notes bear interest at a rate
of 6.125%, 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 reduced to Ba1, BB+, or BB+,
respectively, or below. On the date the Notes were issued, the
Companys ratings from Moodys Investor Services,
Inc., Standard & Poors Ratings Services and
Fitch Ratings were Baa2, BBB 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 2.00%. 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.
In the fourth quarter of 2009, the Company entered into a series
of interest rate swap agreements to adjust the amount of debt
that is subject to fixed interest rates. The interest rate swaps
are matched with the 6.125% Notes Due 2014 and accounted
for as fair value hedges of those notes. The interest rate swaps
have a total notional amount of $400,000 with maturities in
2014. In each of the contracts, the Company receives payments
based upon a fixed interest rate of 6.125%, which matches the
interest rate of the notes being hedged, and makes payments
based upon a floating rate based on Libor. These contracts are
designated and effective as hedges of the change in the fair
value of the associated debt. At December 27, 2009, the
fair value of these contracts was a liability of $2,725 which is
recorded in other liabilities with a corresponding fair value
adjustment to decrease long-term debt. The Company recorded a
loss of $2,725 on these instruments in other (income) expense,
net for the year ended December 27, 2009, relating to the
change in fair value of such derivatives, wholly offsetting
gains from the change in fair value of the associated long-term
debt.
In 2008 the Company repaid $135,092 of 6.15% notes due in
July 2008.
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 31, 2009, this contingent conversion feature
was met and the debentures are convertible through
March 31, 2010, 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
61
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
on the Companys common stock price, the Company had the
right to call the debentures under this provision. As of
December 27, 2009, the Company had the right to call the
debentures. The holders of these 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.
At December 27, 2009, as detailed above, the Companys
6.125% Notes mature in 2014. All of the Companys
other long-term borrowings have contractual maturities that
occur subsequent to 2014.
At December 27, 2009, the fair values of the
6.125% Notes, 6.30% Notes, 2.75% Convertible
Debentures and the 6.60% Debentures were approximately
$465,545, $375,585, $373,515 and $110,697, respectively. At
December 28, 2008, the fair values of the 6.30% Notes,
2.75% Convertible Debentures and the 6.60% Debentures
were approximately $335,000, $334,200 and $100,300,
respectively. The fair value of the convertible debt is based on
an average of the prices of trades occurring around the balance
sheet date. The fair values of the Companys other
long-term borrowings are measured using a combination of broker
quotations when available and discounted future cash flows. The
fair value of the interest rate swaps are measured based on the
present value of future cash flows using the swap curve as of
the date of valuation.
Income taxes attributable to earnings before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
87,053
|
|
|
|
68,514
|
|
|
|
42,613
|
|
State and local
|
|
|
4,142
|
|
|
|
251
|
|
|
|
5,497
|
|
International
|
|
|
44,436
|
|
|
|
40,530
|
|
|
|
43,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,631
|
|
|
|
109,295
|
|
|
|
91,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
17,387
|
|
|
|
22,917
|
|
|
|
33,707
|
|
State and local
|
|
|
993
|
|
|
|
1,964
|
|
|
|
2,889
|
|
International
|
|
|
756
|
|
|
|
113
|
|
|
|
982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,136
|
|
|
|
24,994
|
|
|
|
37,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,767
|
|
|
|
134,289
|
|
|
|
129,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain income tax (benefits) expenses, not reflected in income
taxes in the consolidated statements of operations totaled
$(2,905) in 2009, $(29,287) in 2008, and $2,542 in 2007. These
income tax (benefits) expenses relate primarily to derivative
and pension amounts recorded in AOCE and stock options. In 2009,
2008, and 2007, the deferred tax portion of the total (benefit)
expense was $(1,041), $(26,555), and $20,163, respectively.
62
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
A reconciliation of the statutory United States federal income
tax rate to Hasbros effective income tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
1.1
|
|
Investment of foreign earnings in U.S.
|
|
|
|
|
|
|
3.5
|
|
|
|
4.4
|
|
Tax on international earnings
|
|
|
(7.5
|
)
|
|
|
(7.9
|
)
|
|
|
(10.9
|
)
|
Fair value adjustment of liabilities potentially settleable in
common stock
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
Exam settlements and statute expirations
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
(6.5
|
)
|
Other, net
|
|
|
1.5
|
|
|
|
(0.4
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2
|
%
|
|
|
30.4
|
%
|
|
|
28.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009 the Company indefinitely reinvested all current year
international net earnings outside the U.S. In 2008 and
2007, the Company designated $60,000 and $90,000, respectively,
of the international net earnings during those years that will
not be indefinitely reinvested outside of the U.S. The
incremental income tax on these amounts, 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.
The components of earnings before income taxes, determined by
tax jurisdiction, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
248,654
|
|
|
|
208,125
|
|
|
|
165,274
|
|
International
|
|
|
281,043
|
|
|
|
232,930
|
|
|
|
297,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
529,697
|
|
|
|
441,055
|
|
|
|
462,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred income tax expense arise from various
temporary differences and relate to items included in the
statements of operations as well as items recognized in other
comprehensive earnings.
63
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 27, 2009 and December 28, 2008 are:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
17,314
|
|
|
|
16,764
|
|
Inventories
|
|
|
15,937
|
|
|
|
20,226
|
|
Losses and tax credit carryforwards
|
|
|
29,623
|
|
|
|
34,438
|
|
Operating expenses
|
|
|
40,419
|
|
|
|
42,947
|
|
Pension
|
|
|
26,566
|
|
|
|
34,065
|
|
Other compensation
|
|
|
45,383
|
|
|
|
31,331
|
|
Postretirement benefits
|
|
|
14,463
|
|
|
|
12,647
|
|
Tax sharing agreement
|
|
|
26,352
|
|
|
|
|
|
Other
|
|
|
31,683
|
|
|
|
39,147
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
247,740
|
|
|
|
231,565
|
|
Valuation allowance
|
|
|
(11,641
|
)
|
|
|
(11,755
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
236,099
|
|
|
|
219,810
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
|
56,787
|
|
|
|
47,608
|
|
International earnings not indefinitely reinvested
|
|
|
25,903
|
|
|
|
24,641
|
|
Depreciation and amortization of long-lived assets
|
|
|
40,144
|
|
|
|
40,509
|
|
Equity method investment
|
|
|
26,941
|
|
|
|
|
|
Other
|
|
|
7,227
|
|
|
|
11,035
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
157,002
|
|
|
|
123,793
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
79,097
|
|
|
|
96,017
|
|
|
|
|
|
|
|
|
|
|
Hasbro has a valuation allowance for certain deferred tax assets
at December 27, 2009 of $11,641, which is a decrease of
$114 from $11,755 at December 28, 2008. The valuation
allowance pertains to certain United States and International
loss carryforwards, some of which have no expiration and others
that would expire beginning in 2010.
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 $54,321 and $53,285 at the end of 2009
and 2008, respectively, are included as a component of prepaid
expenses and other current assets, and $31,537 and $53,031,
respectively, are included as a component of other assets. At
the same dates, deferred income taxes of $1,456 and $4,245,
respectively, are included as a component of accrued
liabilities, and $5,305 and $6,054, respectively, are included
as a component of other liabilities.
On January 1, 2007, the Company adopted the revised
accounting standard related to uncertain tax positions. The
revised standard 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. The revised standard also
provides guidance on derecognition of such tax positions,
64
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
classification, potential interest and penalties, accounting in
interim periods and disclosure. The adoption of the revised
standard resulted in a decrease of $88,798 to current
liabilities, an increase of $85,773 to long-term liabilities, an
increase of $5,333 to the long-term deferred tax assets and an
increase of $8,358 to retained earnings.
A reconciliation of unrecognized tax benefits, excluding
potential interest and penalties, for the fiscal years ended
December 27, 2009, December 28, 2008 and
December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
79,456
|
|
|
|
58,855
|
|
|
|
72,878
|
|
Gross increases in prior period tax positions
|
|
|
1,430
|
|
|
|
803
|
|
|
|
1,980
|
|
Gross decreases in prior period tax positions
|
|
|
(14,250
|
)
|
|
|
(2,612
|
)
|
|
|
(889
|
)
|
Gross increases in current period tax positions
|
|
|
34,189
|
|
|
|
25,101
|
|
|
|
12,840
|
|
Decreases related to settlements with tax authorities
|
|
|
(269
|
)
|
|
|
(1,229
|
)
|
|
|
(633
|
)
|
Decreases from the expiration of statute of limitations
|
|
|
(2,699
|
)
|
|
|
(1,462
|
)
|
|
|
(27,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
97,857
|
|
|
|
79,456
|
|
|
|
58,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the $97,857 balance as of December 27, 2009 is
recognized, approximately $70,000 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 2009, 2008 and 2007 the Company recognized $3,405, $3,357
and $4,628, respectively, of potential interest and penalties,
which are included as a component of income taxes in the
accompanying consolidated statement of operations. At
December 27, 2009, December 28, 2008 and
December 30, 2007, the Company had accrued potential
interest and penalties of $17,938, $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 2004.
The U.S. Internal Revenue Service has commenced an
examination related to the 2006 and 2007 U.S. federal
income tax returns. The U.S. Internal Revenue Service has
recently completed an examination related to the 2004 and 2005
U.S. federal income tax returns at the field agent level,
subject to review by the Joint Committee on Taxation. The
Company is also under income tax examination in several
U.S. state and local and
non-U.S. jurisdictions.
In connection with the Mexican tax examinations for the years
2000 to 2004, the Company has received tax assessments totaling
approximately $130,000, 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 for the years 2000 to 2003, as is
usual and customary in Mexico with respect to these matters.
Accordingly, as of December 27, 2009, bonds totaling
approximately $105,000 (at year-end 2009 exchange rates) have
been provided to the Mexican government related to the 2000 to
2003 assessments, allowing the Company to defend its positions.
The Company currently does not expect to be required to
guarantee the amount of the 2004 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 2004.
65
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
The Company believes it is reasonably possible that certain tax
examinations and statutes of limitations may be concluded and
will expire within the next 12 months, and that
unrecognized tax benefits, excluding potential interest and
penalties, may decrease by up to approximately $24,000, of which
approximately $14,000 would be recorded as a tax benefit in the
statement of operations. In addition, approximately $4,000 of
potential interest and penalties related to these amounts would
also be recorded as a tax benefit in the statement of
operations. These unrecognized tax benefits primarily relate to
both the timing and the nature of the deductibility of certain
expenses, as well as the tax treatment of certain subsidiary and
other transactions.
The cumulative amount of undistributed earnings of Hasbros
international subsidiaries held for indefinite reinvestment is
approximately $914,000 at December 27, 2009. In the event
that all international undistributed earnings were remitted to
the United States, the amount of incremental taxes would be
approximately $216,000.
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. In 2009, the Company
repurchased 3,172 shares at an average price of $28.67. The
total cost of these repurchases, including transaction costs,
was $90,994. At December 27, 2009, $161,434 remained under
this authorization.
|
|
(11)
|
Fair
Value of Financial Instruments
|
The Company measures certain assets at fair value in accordance
with current accounting standards. The 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.
Certain aspects of fair value accounting standards were not
required to be adopted for certain non-financial assets and
liabilities until the first day of fiscal 2009 and, as such,
were adopted by the Company in the first quarter of 2009. The
adoption of these provisions did not have an impact on the
Companys consolidated statements of operations or balance
sheets.
Current accounting standards permit 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. During 2009 the Company elected the fair value
option for certain investments purchased during the year. At
December 27, 2009, these investments totaled $21,108 and
are included in prepaid expenses and other current assets in the
consolidated balance sheet. The Company recorded net gains of
$1,019 on these investments in other (income) expense, net for
the year ended December 27, 2009, relating to the change in
fair value of such investments.
66
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
At December 27, 2009 and December 28, 2008, the
Company had the following assets measured at fair value in its
consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
21,151
|
|
|
|
43
|
|
|
|
21,108
|
|
|
|
|
|
Derivatives
|
|
|
26,631
|
|
|
|
|
|
|
|
19,823
|
|
|
|
6,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47,782
|
|
|
|
43
|
|
|
|
40,931
|
|
|
|
6,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Certain other
available-for-sale
securities held by the Company are valued at the net asset value
which is quoted on a private market that is not active; however,
the unit price is predominantly based on underlying investments
which are traded on an active market. The Companys
derivatives consist primarily of foreign currency forward
contracts. The Company uses current forward rates of the
respective foreign currencies to measure the fair value of these
contracts. The Companys derivatives also include interest
rate swaps used to adjust the amount of long-term debt subject
to fixed interest rates. The fair values of the interest rate
swaps are measured based on the present value of future cash
flows using the swap curve as of the valuation date. The
remaining derivative 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. There were no changes in these valuation techniques
during 2009.
The following is a reconciliation of the beginning and ending
balances of the fair value measurements of the Companys
warrants to purchase common stock that use significant
unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
4,591
|
|
|
|
8,580
|
|
Loss from decrease in fair value
|
|
|
(776
|
)
|
|
|
(3,989
|
)
|
Warrant modification
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
6,808
|
|
|
|
4,591
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of 2009, certain warrants held by the
Company were modified in connection with the amendment of an
existing license agreement. The fair value of the modification
was recorded as deferred revenue and is being amortized to
revenue over the term of the amended license agreement.
67
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
|
|
(12)
|
Stock
Options, Other Stock Awards and Warrants
|
Hasbro has reserved 20,266 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 or grant
restricted stock units to certain key employees. In 2009 the
Company did not issue any restricted stock or restricted stock
units. In 2008 and 2007 the Company granted restricted stock
units of 60 and 12 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 of the underlying common stock at the date of grant and
are subsequently amortized over the periods during which the
restrictions lapse, generally 3 years. In 2009, the Company
had forfeitures of 2 units granted in 2008. There were no
forfeitures in 2008 or 2007. Compensation expense, net of
forfeitures, recognized in selling, distribution and
administration expense relating to the outstanding restricted
stock and restricted stock units was $768, $661, and $183 in
fiscal 2009, 2008, and 2007, respectively. At December 27,
2009, the amount of total unrecognized compensation cost related
to restricted stock units is $1,002 and the weighted average
period over which this will be expensed is 16 months. In
2009, the Company issued 20 shares related to restricted
stock granted in 2006.
In 2009, 2008, and 2007, 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 2011,
December 2010, and December 2009 for the 2009, 2008 and 2007
awards, respectively. 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.
68
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 2009,
2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Outstanding at beginning of year
|
|
|
1,830
|
|
|
|
1,194
|
|
|
|
738
|
|
Granted
|
|
|
631
|
|
|
|
696
|
|
|
|
537
|
|
Forfeited
|
|
|
(52
|
)
|
|
|
(60
|
)
|
|
|
(81
|
)
|
Vested
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,639
|
|
|
|
1,830
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
22.31
|
|
|
|
27.10
|
|
|
|
28.74
|
|
Forfeited
|
|
$
|
26.53
|
|
|
|
24.31
|
|
|
|
22.89
|
|
Vested
|
|
$
|
19.06
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
$
|
26.22
|
|
|
|
24.15
|
|
|
|
23.12
|
|
Stock Performance Awards granted during 2009 and 2008 include
116 and 100 shares related to the 2007 and 2006 awards,
respectively, reflecting an increase in the ultimate amount of
the awards 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 2009 and 2008.
During 2009, 2008 and 2007, the Company recognized $15,361,
$17,422 and $11,122, 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 of the underlying common
stock at the dates of grant and are being amortized over the
three fiscal years ended December 2011, December 2010, and
December 2009 for the 2009, 2008 and 2007 awards, respectively.
At December 27, 2009, the amount of total unrecognized
compensation cost related to these awards is approximately
$13,339 and the weighted average period over which this will be
expensed is 19 months.
Total compensation expense related to stock options and the
Stock Performance Awards for the years ended December 27,
2009, December 28, 2008 and December 30, 2007 was
$27,779, $33,300 and $28,229, respectively, and was recorded as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
462
|
|
|
|
471
|
|
|
|
374
|
|
Research and product development
|
|
|
2,205
|
|
|
|
2,551
|
|
|
|
1,937
|
|
Selling, distribution and administration
|
|
|
25,112
|
|
|
|
30,278
|
|
|
|
25,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,779
|
|
|
|
33,300
|
|
|
|
28,229
|
|
Income tax benefit
|
|
|
9,009
|
|
|
|
11,794
|
|
|
|
9,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,770
|
|
|
|
21,506
|
|
|
|
18,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
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 27, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Outstanding at beginning of year
|
|
|
11,651
|
|
|
|
14,495
|
|
|
|
17,309
|
|
Granted
|
|
|
2,955
|
|
|
|
3,177
|
|
|
|
2,243
|
|
Exercised
|
|
|
(476
|
)
|
|
|
(5,753
|
)
|
|
|
(4,586
|
)
|
Expired or canceled
|
|
|
(783
|
)
|
|
|
(268
|
)
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
13,347
|
|
|
|
11,651
|
|
|
|
14,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
7,839
|
|
|
|
6,345
|
|
|
|
9,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
22.73
|
|
|
|
27.10
|
|
|
|
32.42
|
|
Exercised
|
|
$
|
19.35
|
|
|
|
21.02
|
|
|
|
18.04
|
|
Expired or canceled
|
|
$
|
31.53
|
|
|
|
27.49
|
|
|
|
26.60
|
|
Outstanding at end of year
|
|
$
|
23.23
|
|
|
|
23.76
|
|
|
|
22.01
|
|
Exercisable at end of year
|
|
$
|
21.70
|
|
|
|
21.01
|
|
|
|
20.48
|
|
With respect to the 13,347 outstanding options and 7,839 options
exercisable at December 27, 2009, the weighted average
remaining contractual life of these options was 4.55 years
and 3.73 years, respectively. The aggregate intrinsic value
of the options outstanding and exercisable at December 27,
2009 was $119,747 and $82,373, respectively.
The Company uses the Black-Scholes valuation model in
determining the fair value of stock options. The weighted
average fair value of options granted in fiscal 2009, 2008 and
2007 was $5.16, $4.46 and $7.39, 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 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
|
1.87
|
%
|
|
|
2.71
|
%
|
|
|
4.79
|
%
|
Expected dividend yield
|
|
|
3.52
|
%
|
|
|
2.95
|
%
|
|
|
1.97
|
%
|
Expected volatility
|
|
|
36
|
%
|
|
|
22
|
%
|
|
|
22
|
%
|
Expected option life
|
|
|
4 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 2009, 2008 and
2007 were $4,044, $83,747 and $54,629, respectively.
At December 27, 2009, the amount of total unrecognized
compensation cost related to stock options was $17,343 and the
weighted average period over which this will be expensed is
23 months.
In 2009, 2008 and 2007, the Company granted 60, 36 and
31 shares of common stock, respectively, to its
non-employee members of its Board of Directors. Of these shares,
the receipt of 51 shares from the 2009 grant,
30 shares from the 2008 grant and 19 shares from the
2007 grant has 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
of the underlying common stock at the date of grant and vested
upon grant. In connection with these grants, compensation cost
of $1,365, $1,260 and $990 was recorded in selling, distribution
and administration expense in 2009, 2008 and 2007, respectively.
70
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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 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, the Company recorded other
expense of $44,370 to adjust the warrants to their fair value.
This amount is 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.
|
|
(13)
|
Pension,
Postretirement and Postemployment Benefits
|
Pension
and Postretirement Benefits
The Company recognizes an asset or liability for each of its
defined benefit pension plans equal to the difference between
the projected benefit obligation of the plan and the fair value
of the plans assets. Actuarial gains and losses and prior
service costs that have not yet been included in income are
recognized in the balance sheet in AOCE.
In 2007 the Company changed 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. 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.
Expenses related to the Companys defined benefit and
defined contribution plans for 2009, 2008 and 2007 were
approximately $41,100, $33,400 and $25,900, respectively. Of
these amounts, $27,600, $32,400 and $13,400 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.
United
States Plans
Prior to 2008, substantially all United States employees were
covered under at least one of several non-contributory defined
benefit pension plans maintained by the Company. Benefits under
the two major plans
71
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
which principally cover non-union employees, were 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 27, 2009, the measurement date, the projected
benefit obligations of the funded plans were in excess of the
fair value of the plans assets in the amount of $19,395
while the unfunded plans of the Company had an aggregate
accumulated and projected benefit obligation of $36,448. At
December 28, 2008, the projected benefit obligations of the
funded plans were in excess of the fair value of the plans
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.
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.
72
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 27, 2009 and December 28, 2008
for the projected benefit obligation and the fair value of plan
assets are included below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation beginning
|
|
$
|
300,334
|
|
|
|
288,045
|
|
|
|
32,583
|
|
|
|
33,726
|
|
Service cost
|
|
|
1,642
|
|
|
|
1,597
|
|
|
|
627
|
|
|
|
570
|
|
Interest cost
|
|
|
17,358
|
|
|
|
17,714
|
|
|
|
1,903
|
|
|
|
2,065
|
|
Actuarial loss (gain)
|
|
|
20,972
|
|
|
|
9,253
|
|
|
|
(2,291
|
)
|
|
|
(1,668
|
)
|
Effect of curtailment
|
|
|
|
|
|
|
1,019
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(20,531
|
)
|
|
|
(16,385
|
)
|
|
|
(1,949
|
)
|
|
|
(2,110
|
)
|
Settlements
|
|
|
(12,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses paid
|
|
|
(1,283
|
)
|
|
|
(909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation ending
|
|
$
|
306,220
|
|
|
|
300,334
|
|
|
|
30,873
|
|
|
|
32,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation ending
|
|
$
|
306,220
|
|
|
|
300,334
|
|
|
|
30,873
|
|
|
|
32,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning
|
|
$
|
231,742
|
|
|
|
283,478
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
37,818
|
|
|
|
(37,000
|
)
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
14,904
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
Benefits and settlements paid
|
|
|
(32,803
|
)
|
|
|
(16,385
|
)
|
|
|
|
|
|
|
|
|
Expenses paid
|
|
|
(1,283
|
)
|
|
|
(909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets ending
|
|
$
|
250,378
|
|
|
|
231,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
(306,220
|
)
|
|
|
(300,334
|
)
|
|
|
(30,873
|
)
|
|
|
(32,583
|
)
|
Fair value of plan assets
|
|
|
250,378
|
|
|
|
231,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(55,842
|
)
|
|
|
(68,592
|
)
|
|
|
(30,873
|
)
|
|
|
(32,583
|
)
|
Unrecognized net loss
|
|
|
80,201
|
|
|
|
86,518
|
|
|
|
1,142
|
|
|
|
3,444
|
|
Unrecognized prior service cost
|
|
|
1,122
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
25,481
|
|
|
|
19,314
|
|
|
|
(29,731
|
)
|
|
|
(29,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
(2,811
|
)
|
|
|
(14,431
|
)
|
|
|
(2,400
|
)
|
|
|
(2,400
|
)
|
Other liabilities
|
|
|
(53,031
|
)
|
|
|
(54,161
|
)
|
|
|
(28,473
|
)
|
|
|
(30,183
|
)
|
Accumulated other comprehensive earnings
|
|
|
81,323
|
|
|
|
87,906
|
|
|
|
1,142
|
|
|
|
3,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
25,481
|
|
|
|
19,314
|
|
|
|
(29,731
|
)
|
|
|
(29,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2010, the Company expects amortization of unrecognized
net losses and unrecognized prior service cost related to its
defined benefit pension plans of $4,115 and $198, respectively,
to be included as a component of net periodic benefit cost. The
Company does not expect any amortization of unrecognized net
losses in 2010 related to its postretirement plan.
73
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 pension and
postretirement benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Pension
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
5.73
|
%
|
|
|
6.20
|
%
|
Mortality table
|
|
|
RP-2000
|
|
|
|
RP-2000
|
|
Postretirement
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
6.02
|
%
|
Health care cost trend rate assumed for next year
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend
|
|
|
2018
|
|
|
|
2016
|
|
The assets of the funded plans are managed by investment
advisors. The fair values of the plan assets by asset category
as of December 27, 2009 and December 28, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Large Cap Equity
|
|
$
|
18,400
|
|
|
|
8,200
|
|
Small Cap Equity
|
|
|
26,500
|
|
|
|
12,900
|
|
International Equity
|
|
|
24,800
|
|
|
|
16,700
|
|
Other Equity
|
|
|
39,900
|
|
|
|
22,200
|
|
Fixed Income
|
|
|
93,400
|
|
|
|
125,300
|
|
Total Return Fund
|
|
|
42,200
|
|
|
|
41,900
|
|
Cash
|
|
|
5,200
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,400
|
|
|
|
231,700
|
|
|
|
|
|
|
|
|
|
|
As described in note 10, financial reporting standards
define a fair value hierarchy which consists of three levels.
The fair values of the plan assets by fair value hierarchy level
as of December 27, 2009 and December 28, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
$
|
44,400
|
|
|
|
20,700
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
166,100
|
|
|
|
188,800
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
39,900
|
|
|
|
22,200
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,400
|
|
|
|
231,700
|
|
|
|
|
|
|
|
|
|
|
Level 1 assets primarily consist of investments traded on
active markets that are valued using published closing prices.
The Plans Level 2 assets primarily consist of
investments in common and collective trusts as well as other
private investment funds that are valued using the net asset
values provided by the trust or fund. Although these trusts and
funds are not traded in an active market with quoted prices, the
investments underlying the net asset value are based on quoted
prices. The Plans Level 3 assets consist of an
investment in a hedge fund which is valued using the net asset
value provided by the investment manager. This fund contains
investments in financial instruments that are valued using
certain estimates which are considered unobservable in that they
reflect the investment managers own assumptions about the
inputs that market participants would use in pricing the asset
or liability. The Company believes that the net asset value is
the
74
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
best information available for use in the fair value measurement
of this fund. All activity in Level 3 assets for 2009
relates to the actual return on plan assets still held at
December 27, 2009.
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 8.50%, 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. The
Companys asset allocation includes 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 27,
2009 and December 28, 2008. 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.
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.
75
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
For 2009, 2008 and 2007, the Company measured the assets and
obligations of the Plans as of the fiscal year-end. The
following is a detail of the components of the net periodic
benefit cost (benefit) for the three years ended
December 27, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of Net Periodic Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,642
|
|
|
|
1,597
|
|
|
|
9,437
|
|
Interest cost
|
|
|
17,358
|
|
|
|
17,714
|
|
|
|
17,435
|
|
Expected return on assets
|
|
|
(18,982
|
)
|
|
|
(23,961
|
)
|
|
|
(23,064
|
)
|
Amortization of prior service cost
|
|
|
266
|
|
|
|
282
|
|
|
|
634
|
|
Amortization of actuarial loss
|
|
|
4,495
|
|
|
|
993
|
|
|
|
1,768
|
|
Curtailment/settlement losses
|
|
|
3,957
|
|
|
|
1,213
|
|
|
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (benefit)
|
|
$
|
8,736
|
|
|
|
(2,162
|
)
|
|
|
7,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
627
|
|
|
|
570
|
|
|
|
597
|
|
Interest cost
|
|
|
1,903
|
|
|
|
2,065
|
|
|
|
2,105
|
|
Amortization of actuarial loss
|
|
|
12
|
|
|
|
115
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
2,542
|
|
|
|
2,750
|
|
|
|
3,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit cost of the
pension plan and postretirement plan for each fiscal year follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
6.20
|
%
|
|
|
6.34
|
%
|
|
|
5.83
|
%
|
Long-term rate of return on plan assets
|
|
|
8.50
|
%
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.02
|
%
|
|
|
6.32
|
%
|
|
|
5.80
|
%
|
Health care cost trend rate assumed for next year
|
|
|
8.50
|
%
|
|
|
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 27, 2009 and the aggregate of the
benefits earned during the period and the interest cost would
have both increased by approximately 4%.
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.
76
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 plan for the next five years
subsequent to 2009 and in the aggregate for the following five
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Benefit
|
|
Subsidy
|
|
|
Pension
|
|
Payments
|
|
Receipts
|
|
2010
|
|
$
|
18,184
|
|
|
|
2,304
|
|
|
|
197
|
|
2011
|
|
|
18,748
|
|
|
|
2,077
|
|
|
|
198
|
|
2012
|
|
|
19,848
|
|
|
|
2,136
|
|
|
|
197
|
|
2013
|
|
|
19,688
|
|
|
|
2,195
|
|
|
|
195
|
|
2014
|
|
|
20,454
|
|
|
|
2,246
|
|
|
|
190
|
|
2015-2019
|
|
|
109,011
|
|
|
|
11,365
|
|
|
|
806
|
|
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 27, 2009 and December 28, 2008, the
defined benefit plans had total projected benefit obligations of
$70,328 and $67,437, respectively, and fair values of plan
assets of $69,724 and $40,515, respectively. Substantially all
of the plan assets are invested in equity and fixed income
securities. The pension expense related to these plans was
$4,903, $3,226 and $3,937 in 2009, 2008 and 2007, respectively.
In fiscal 2010, the Company expects amortization of $71 of prior
service costs, $57 of unrecognized net losses and $(1) 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 2009 and
in the aggregate for the five years thereafter are as follows:
2010: $1,291; 2011: $1,405; 2012: $1,669; 2013: $2,104; 2014:
$2,650; and 2015 through 2019: $16,017.
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.
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 2009, 2008 and 2007 amounted to $43,562, $43,634 and
$36,897, respectively.
Minimum rentals, net of minimum sublease income, which is not
material, under long-term operating leases for the five years
subsequent to 2009 and in the aggregate thereafter are as
follows: 2010: $25,932; 2011: $22,845; 2012: $17,439; 2013:
$14,559; 2014: $6,728; and thereafter: $10,972.
All leases expire prior to the end of 2020. 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 2009.
77
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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
restructuring charge and are not included in minimum rental
amounts above.
|
|
(15)
|
Derivative
Financial Instruments
|
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 currency requirements related to
purchases of inventory and other cross-border transactions not
denominated in the functional currency of the business 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
single 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.
The Company also has warrants to purchase common stock that
qualify as derivatives. For additional information related to
these warrants see note 11. In addition, during the fourth
quarter of 2009, the Company entered into several interest rate
swap agreements to adjust the amount of long-term debt subject
to fixed interest rates. For additional information related to
these interest rate swaps see note 8.
Cash
Flow Hedges
Hasbro uses foreign currency forward contracts to reduce the
impact of currency rate fluctuations on firmly committed and
projected future foreign currency transactions. All of the
Companys designated foreign currency forward contracts are
considered to be cash flow hedges. These instruments hedge a
portion of the Companys currency requirements associated
with anticipated inventory purchases and other cross-border
transactions in 2010 and 2011.
At December 27, 2009, the notional amounts and fair values
of the Companys foreign currency forward contracts
designated as cash flow hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
Hedged Transaction
|
|
Notional Amount
|
|
|
Fair Value
|
|
|
Inventory purchases
|
|
$
|
380,661
|
|
|
|
16,715
|
|
Intercompany royalty transactions
|
|
|
135,921
|
|
|
|
7,007
|
|
Other
|
|
|
30,268
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
546,850
|
|
|
|
23,952
|
|
|
|
|
|
|
|
|
|
|
The Company has a master agreement with each of its
counterparties that allows for the netting of outstanding
forward contracts. The fair values of the Companys foreign
currency forward contracts designated as cash flow hedges are
recorded in the consolidated balance sheet at December 27,
2009 as follows:
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
Unrealized gains
|
|
$
|
12,142
|
|
Unrealized losses
|
|
|
(1,899
|
)
|
|
|
|
|
|
Net unrealized gain
|
|
|
10,243
|
|
Other assets
|
|
|
|
|
Unrealized gains
|
|
|
13,709
|
|
|
|
|
|
|
Total
|
|
$
|
23,952
|
|
|
|
|
|
|
78
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
During the year ended December 27, 2009, the Company
reclassified net gains from other comprehensive earnings to net
earnings of $21,240. Of the amount reclassified in 2009, $17,173
was reclassified to cost of sales and $4,785 was reclassified to
royalty expense. In addition, net losses of $(718) were
reclassified to earnings as a result of hedge ineffectiveness in
2009.
Undesignated
Hedges
The Company also enters into foreign currency forward contracts
to minimize the impact of changes in the fair value of
intercompany loans due to foreign currency changes. Due to the
short-term nature of the derivative contracts involved, the
Company does not use hedge accounting for these contracts. As of
December 27, 2009, the total notional amount of the
Companys undesignated derivative instruments was $94,926.
At December 27, 2009, the fair values of the Companys
undesignated derivative financial instruments are recorded in
prepaid expenses and other current assets in the consolidated
balance sheet as follows:
|
|
|
|
|
Unrealized gains
|
|
$
|
747
|
|
Unrealized losses
|
|
|
(2,151
|
)
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(1,404
|
)
|
|
|
|
|
|
The Company recorded net gains (losses) of $6,580, $(42,382) and
$(2,098) on these instruments to other (income) expense, net for
2009, 2008 and 2007, respectively, relating to the change in
fair value of such derivatives, substantially offsetting gains
and losses from the change in fair value of intercompany loans
to which the contracts relate.
For additional information related to the Companys
derivative financial instruments see notes 2, 8 and 11.
|
|
(16)
|
Commitments
and Contingencies
|
Hasbro had unused open letters of credit and related instruments
of approximately $135,277 and $100,700 at December 27, 2009
and December 28, 2008, respectively.
The Company enters into license agreements with inventors,
designers and others for the use of intellectual properties in
its products. Certain of these agreements contain provisions for
the payment of guaranteed or minimum royalty amounts.
Additionally, the Company has a long-term commitment related to
promotional and marketing activities at a U.S. based theme
park. Under terms of existing agreements as of December 27,
2009, Hasbro may, provided the other party meets their
contractual commitment, be required to pay amounts as follows:
2010: $32,761; 2011: $36,804; 2012: $61,926; 2013: $85,000;
2014: $14,375; and thereafter: $100,625. At December 27,
2009, the Company had $120,115 of prepaid royalties, $43,115 of
which are included in prepaid expenses and other current assets
and $77,000 of which are included in other assets.
In addition to the above commitments, certain of the above
contracts impose minimum marketing commitments on the Company.
The Company may be subject to additional royalty guarantees
totaling $140,000 that are not included in the amounts above
that may be payable during the next five to six years contingent
upon the quantity and types of theatrical movie releases.
In connection with the Companys agreement to form a joint
venture with Discovery, the Company is obligated to make future
payments to Discovery under a tax sharing agreement. The Company
estimates these payments may total approximately $139,000 and
may range from approximately $3,000 to $7,000 per year during
the period 2010 to 2014, and approximately $110,000 in aggregate
for all years occurring thereafter.
79
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
These payments are contingent upon the Company having sufficient
taxable income to realize the expected tax deductions of certain
amounts related to the joint venture.
At December 27, 2009, the Company had approximately
$251,917 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. In 2009 the Company changed the name of the Other
segment to Entertainment and Licensing. The Companys
segments now are (i) U.S. and Canada,
(ii) International, (iii) Entertainment and Licensing,
and (iv) Global Operations.
The U.S. and Canada segment includes the 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 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 Entertainment and Licensing segment
includes the Companys lifestyle licensing, digital gaming,
movie, television and online entertainment operations.
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.
Results shown for fiscal years 2009, 2008 and 2007 are not
necessarily those which would be achieved if each segment was an
unaffiliated business enterprise.
80
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
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
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
2,447,943
|
|
|
|
10,502
|
|
|
|
380,580
|
|
|
|
52,161
|
|
|
|
2,060
|
|
|
|
3,901,598
|
|
International
|
|
|
1,459,476
|
|
|
|
165
|
|
|
|
162,159
|
|
|
|
28,201
|
|
|
|
4,339
|
|
|
|
1,519,542
|
|
Entertainment and Licensing
|
|
|
155,013
|
|
|
|
|
|
|
|
65,572
|
|
|
|
16,656
|
|
|
|
1,002
|
|
|
|
711,631
|
|
Global Operations(a)
|
|
|
5,515
|
|
|
|
1,503,622
|
|
|
|
9,172
|
|
|
|
69,764
|
|
|
|
67,661
|
|
|
|
1,012,597
|
|
Corporate and eliminations(b)
|
|
|
|
|
|
|
(1,514,289
|
)
|
|
|
(28,885
|
)
|
|
|
14,181
|
|
|
|
29,067
|
|
|
|
(3,248,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$
|
4,067,947
|
|
|
|
|
|
|
|
588,598
|
|
|
|
180,963
|
|
|
|
104,129
|
|
|
|
3,896,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Entertainment and Licensing
|
|
|
107,929
|
|
|
|
|
|
|
|
51,035
|
|
|
|
7,938
|
|
|
|
139
|
|
|
|
255,737
|
|
Global Operations(a)
|
|
|
7,512
|
|
|
|
1,619,072
|
|
|
|
19,450
|
|
|
|
63,940
|
|
|
|
80,618
|
|
|
|
1,409,427
|
|
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
|
|
Entertainment and Licensing
|
|
|
87,245
|
|
|
|
|
|
|
|
38,881
|
|
|
|
3,515
|
|
|
|
371
|
|
|
|
179,095
|
|
Global Operations(a)
|
|
|
11,707
|
|
|
|
1,493,750
|
|
|
|
19,483
|
|
|
|
67,519
|
|
|
|
61,678
|
|
|
|
1,337,321
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Global Operations segment derives substantially all of its
revenues, and thus its operating results, from intersegment
activities. |
|
(b) |
|
Certain intangible assets, primarily goodwill, which benefit
multiple operating segments are reflected as Corporate assets
for segment reporting purposes. In accordance with accounting
standards related to impairment testing, 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. |
81
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 27, 2009. Certain 2008 and 2007 amounts have been
reclassified to conform to the current period presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Boys
|
|
$
|
1,470,975
|
|
|
|
1,344,672
|
|
|
|
1,235,462
|
|
Games and puzzles
|
|
|
1,340,886
|
|
|
|
1,339,909
|
|
|
|
1,329,290
|
|
Girls
|
|
|
790,817
|
|
|
|
829,785
|
|
|
|
753,918
|
|
Preschool
|
|
|
451,401
|
|
|
|
456,791
|
|
|
|
397,778
|
|
Other
|
|
|
13,868
|
|
|
|
50,363
|
|
|
|
121,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,067,947
|
|
|
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009 and 2007, revenues from TRANSFORMERS products
accounted for 14.5% and 12.6% of consolidated net revenues,
respectively. No other individual product lines accounted for
10% or more of consolidated net revenues in 2009 or 2007. No
individual product lines accounted for 10% or more of
consolidated net revenues during 2008.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,363,559
|
|
|
|
2,339,171
|
|
|
|
2,210,840
|
|
International
|
|
|
1,704,388
|
|
|
|
1,682,349
|
|
|
|
1,626,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,067,947
|
|
|
|
4,021,520
|
|
|
|
3,837,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,059,304
|
|
|
|
1,079,908
|
|
|
|
1,011,660
|
|
International
|
|
|
191,900
|
|
|
|
174,708
|
|
|
|
133,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,251,204
|
|
|
|
1,254,616
|
|
|
|
1,145,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%, 13% and 11%, respectively, of
consolidated net revenues during 2009, 25%, 12% and 10% during
2008 and 24%, 12% and 11% during 2007. These net revenues were
primarily within 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
82
HASBRO,
INC. AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
(Thousands
of Dollars and Shares Except Per Share Data)
shifted, over a period of time, to alternative sources of supply
for products it sells, should such changes be 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.
|
|
(18)
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full Year
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
621,340
|
|
|
|
792,202
|
|
|
|
1,279,221
|
|
|
|
1,375,184
|
|
|
|
4,067,947
|
|
Gross profit
|
|
|
376,587
|
|
|
|
472,750
|
|
|
|
729,195
|
|
|
|
813,079
|
|
|
|
2,391,611
|
|
Earnings before income taxes
|
|
|
28,587
|
|
|
|
56,854
|
|
|
|
217,859
|
|
|
|
226,397
|
|
|
|
529,697
|
|
Net earnings
|
|
|
19,730
|
|
|
|
39,275
|
|
|
|
150,362
|
|
|
|
165,563
|
|
|
|
374,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
|
0.28
|
|
|
|
1.08
|
|
|
|
1.20
|
|
|
|
2.69
|
|
Diluted
|
|
|
0.14
|
|
|
|
0.26
|
|
|
|
0.99
|
|
|
|
1.09
|
|
|
|
2.48
|
|
Market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.91
|
|
|
|
29.23
|
|
|
|
29.36
|
|
|
|
32.47
|
|
|
|
32.47
|
|
Low
|
|
|
21.14
|
|
|
|
22.27
|
|
|
|
22.79
|
|
|
|
26.82
|
|
|
|
21.14
|
|
Cash dividends declared
|
|
$
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
|
0.27
|
|
|
|
0.98
|
|
|
|
0.67
|
|
|
|
2.18
|
|
Diluted
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
0.89
|
|
|
|
0.62
|
|
|
|
2.00
|
|
Market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.07
|
|
|
|
39.63
|
|
|
|
41.68
|
|
|
|
35.81
|
|
|
|
41.68
|
|
Low
|
|
|
21.57
|
|
|
|
27.73
|
|
|
|
33.23
|
|
|
|
21.94
|
|
|
|
21.57
|
|
Cash dividends declared
|
|
$
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as
defined in
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934 (the
Exchange Act), that are designed to ensure that
information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms and that such information is
accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure. The Company carried out an evaluation,
under the supervision and with the participation of the
Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 27, 2009.
Based on the evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures were effective.
Managements
Report on Internal Control over Financial
Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in
Rule 13a-15(f)
promulgated under the Exchange Act. Hasbros internal
control system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles. Hasbros management assessed the effectiveness
of its internal control over financial reporting as of
December 27, 2009. In making its assessment, Hasbros
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Based on this
assessment, Hasbros management concluded that, as of
December 27, 2009, its internal control over financial
reporting is effective based on those criteria. Hasbros
independent registered public accounting firm has issued an
audit report on internal control over financial reporting, which
is included herein.
84
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Hasbro, Inc.:
We have audited Hasbro, Inc.s internal control over
financial reporting as of December 27, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Hasbro, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 27, 2009, based on criteria established in
Internal Control Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Hasbro, Inc. and subsidiaries as
of December 27, 2009 and December 28, 2008, 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 27, 2009, and
our report dated February 24, 2010 expressed an unqualified
opinion on those consolidated financial statements.
Providence, Rhode Island
February 24, 2010
85
Changes
in Internal Controls
There were no changes in the Companys internal control
over financial reporting, as defined in
Rule 13a-15(f)
promulgated under the Exchange Act, during the quarter ended
December 27, 2009, that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
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Item 9B.
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Other
Information
|
None.
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
|
Certain of the information required by this item is contained
under the captions Election of Directors,
Governance of the Company and
Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys definitive proxy
statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.
The information required by this item with respect to executive
officers of the Company is included in this Annual Report on
Form 10-K
under the caption Executive Officers of the
Registrant and is incorporated herein by reference.
The Company has a Code of Conduct, which is applicable to all of
the Companys employees, officers and directors, including
the Companys Chief Executive Officer, Chief Financial
Officer and Controller. A copy of the Code of Conduct is
available on the Companys website under Corporate,
Investor Relations, Corporate Governance. The Companys
website address is
http://www.hasbro.com.
Although the Company does not generally intend to provide
waivers of or amendments to the Code of Conduct for its Chief
Executive Officer, Chief Financial Officer, Controller, or other
officers or employees, information concerning any waiver of or
amendment to the Code of Conduct for the Chief Executive
Officer, Chief Financial Officer, Controller, or any other
executive officers or directors of the Company, will be promptly
disclosed on the Companys website in the location where
the Code of Conduct is posted.
The Company has also posted on its website, in the Corporate
Governance location referred to above, copies of its Corporate
Governance Principles and of the charters for its
(i) Audit, (ii) Compensation, (iii) Finance,
(iv) Nominating, Governance and Social Responsibility, and
(v) Executive Committees of its Board of Directors.
In addition to being accessible on the Companys website,
copies of the Companys Code of Conduct, Corporate
Governance Principles, and charters for the Companys five
Board Committees, are all available free of charge upon request
to the Companys Senior Vice President, Chief Legal Officer
and Secretary, Barry Nagler, at 1027 Newport Avenue,
P.O. Box 1059, Pawtucket, R.I.
02862-1059.
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Item 11.
|
Executive
Compensation
|
The information required by this item is contained under the
captions Compensation of Directors, Executive
Compensation, Compensation Committee Report,
Compensation Discussion and Analysis and
Compensation Committee Interlocks and Insider
Participation in the Companys definitive proxy
statement for the 2010 Annual Meeting of Shareholders and is
incorporated herein by reference.
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Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is contained under the
captions Voting Securities and Principal Holders
Thereof, Security Ownership of Management and
Equity Compensation Plans in the Companys
86
definitive proxy statement for the 2010 Annual Meeting of
Shareholders and is incorporated herein by reference.
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Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is contained under the
captions Governance of the Company and Certain
Relationships and Related Party Transactions in the
Companys definitive proxy statement for the 2010 Annual
Meeting of Shareholders and is incorporated herein by reference.
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Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is contained under the
caption Additional Information Regarding Independent
Registered Public Accounting Firm in the Companys
definitive proxy statement for the 2010 Annual Meeting of
Shareholders and is incorporated herein by reference.
PART IV
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Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Financial Statements, Financial Statement Schedules and
Exhibits
(1) Financial Statements
Included in PART II of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 27, 2009 and
December 28, 2008
Consolidated Statements of Operations for the Three Fiscal Years
Ended in December 2009, 2008, and 2007
Consolidated Statements of Shareholders Equity for the
Three Fiscal Years Ended in December 2009, 2008, and 2007
Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended in December 2009, 2008, and 2007
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Included in PART IV of this report:
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
For the Three Fiscal Years Ended in December 2009, 2008, and
2007:
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the financial statements or
notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
(3) Exhibits
The Company will furnish to any shareholder, upon written
request, any exhibit listed below upon payment by such
shareholder to the Company of the Companys reasonable
expenses in furnishing such exhibit.
87
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Exhibit
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3
|
.
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Articles of Incorporation and Bylaws
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(a)
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Restated Articles of Incorporation of the Company. (Incorporated
by reference to Exhibit 3.1 to the Companys Quarterly
Report on Form 10-Q for the period ended July 2, 2000, File No.
1-6682.)
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(b)
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Amendment to Articles of Incorporation, dated June 28, 2000.
(Incorporated by reference to Exhibit 3.4 to the Companys
Quarterly Report on Form 10-Q for the period ended July 2, 2000,
File No. 1-6682.)
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(c)
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Amendment to Articles of Incorporation, dated May 19, 2003.
(Incorporated by reference to Exhibit 3.3 to the Companys
Quarterly Report on Form 10-Q for the period ended June 29,
2003, File No. 1-6682.)
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(d)
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Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference to Exhibit 3(d) to the Companys
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 2006, File No. 1-6682.)
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(e)
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Certificate of Designations of Series C Junior Participating
Preference Stock of Hasbro, Inc. dated June 29, 1999.
(Incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for the period ended July 2, 2000,
File No. 1-6682.)
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(f)
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Certificate of Vote(s) authorizing a decrease of class or series
of any class of shares. (Incorporated by reference to Exhibit
3.3 to the Companys Quarterly Report on Form 10-Q for the
period ended July 2, 2000, File No. 1-6682.)
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4
|
.
|
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Instruments defining the rights of security holders, including
indentures.
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(a)
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Indenture, dated as of July 17, 1998, by and between the Company
and Citibank, N.A. as Trustee. (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
dated July 14, 1998, File No. 1-6682.)
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(b)
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Indenture, dated as of March 15, 2000, by and between the
Company and the Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4(b)(i) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1999, File No. 1-6682.)
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(c)
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Indenture, dated as of November 30, 2001, between the Company
and The Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-3, File No. 333-83250, filed
February 22, 2002.)
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(d)
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First Supplemental Indenture, dated as of September 17, 2007,
between the Company and the Bank of Nova Scotia Trust Company of
New York. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed September 17,
2007, File No. 1-6682.)
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(e)
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Second Supplemental Indenture, dated as of May 13, 2009, between
the Company and the Bank of Nova Scotia Trust Company of New
York. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed May 13, 2009,
File No. 1-6682.)
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(f)
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Revolving Credit Agreement, dated as of June 23, 2006, by and
among Hasbro, Inc., Hasbro SA, Bank of America, N.A., Citizens
Bank of Massachusetts, Commerzbank AG, New York and Grand Cayman
Branches, BNP Paribas, Banc of America Securities LLC and the
other banks party thereto. (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K dated June
23, 2006, File No. 1-6682.)
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10
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.
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Material Contracts
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(a)
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Lease between Hasbro Canada Corporation (formerly named Hasbro
Industries (Canada) Ltd.)(Hasbro Canada) and Central
Toy Manufacturing Co. (Central Toy), dated December
23, 1976. (Incorporated by reference to Exhibit 10.15 to the
Companys Registration Statement on Form S-14, File No.
2-92550.)
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(b)
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Lease between Hasbro Canada and Central Toy, together with an
Addendum thereto, each dated as of May 1, 1987. (Incorporated by
reference to Exhibit 10(f) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 27, 1987,
File No. 1-6682.)
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88
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Exhibit
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(c)
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Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
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(d)
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Letter agreement, dated December 13, 2000, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(d) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 2000, File No. 1-6682.)
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(e)
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Indenture and Agreement of Lease between Hasbro Canada and
Central Toy, dated November 11, 2003. (Incorporated by reference
to Exhibit 10(e) to the Companys Annual Report on Form
10-K for the Fiscal Year Ended December 28, 2003, File No.
1-6682.)
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(f)
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Toy License Agreement between Lucas Licensing Ltd. and the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)(Incorporated by reference to
Exhibit 10(d) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
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(g)
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First Amendment to Toy License Agreement between Lucas Licensing
Ltd. and the Company, dated as of September 25, 1998. (Portions
of this agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)(Incorporated by reference to
Exhibit 10(e) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
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(h)
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Seventeenth Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of January 30, 2003.
(Incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 29, 2002, File No. 1-6682.)
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(i)
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Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.) (Incorporated by reference to
Exhibit 10(f) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
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(j)
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First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(Incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the Fiscal Year
ended December 27, 1998, File No. 1-6682.)
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(k)
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Second Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of January 30, 2003.
(Incorporated by reference to Exhibit 10(j) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 29, 2002, File No. 1-6682.)
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(l)
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Receivables Purchase Agreement dated as of December 10, 2003
among Hasbro Receivables Funding, LLC, as the Seller, CAFCO LLC
and Starbird Funding Corporation, as Investors, Citibank, N.A.
and BNP Paribas, as Banks, Citicorp North America, Inc., as
Program Agent, Citicorp North America, Inc. and BNP Paribas, as
Investor Agents, Hasbro, Inc., as Collection Agent and
Originator, and Wizards of the Coast, Inc. and Oddzon, Inc., as
Originators. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10(q) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 2003, File No. 1-6682.)
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89
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Exhibit
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(m)
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Amendment No. 8 to Receivables Purchase Agreement, dated as of
December 18, 2006, among Hasbro Receivables Funding, LLC, as the
Seller, CAFCO LLC and Starbird Funding Corporation, as
Investors, Citibank, N.A. and BNP Paribas, as Banks, Citicorp
North America, Inc., as Program Agent, Citicorp North America,
Inc. and BNP Paribas, as Investor Agents, Hasbro, Inc., as
Collection Agent and Originator, and Wizards of the Coast, Inc.
as Originator. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10(r) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 2006, file No. 1-6682.)
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(n)
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Amendment No. 12 to Receivables Purchase Agreement, dated as of
January 29, 2010, among Hasbro Receivables Funding, LLC, as the
Seller, CAFCO LLC and Starbird Funding Corporation, as
Investors, Citibank, N.A. and BNP Paribas, as Banks, Citicorp
North America, Inc., as Program Agent, Citicorp North America,
Inc. and BNP Paribas, as Investor Agents, Hasbro, Inc., as
Collection Agent and Originator. (Portions of this agreement
have been omitted pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of
1934, as amended.)
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(o)
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License Agreement, dated January 6, 2006, by and between Hasbro,
Inc., Marvel Characters, Inc., and Spider-Man Merchandising L.P.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.) (Incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the period ended April 2, 2006, File No.
1-6682.)
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(p)
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First Amendment to License Agreement, dated February 8, 2006, by
and between Hasbro, Inc., Marvel Characters, Inc. and Spider-Man
Merchandising L.P. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the period ended April 2,
2006, File No. 1-6682.)
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(q)
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License Agreement, dated February 17, 2009, by and between
Hasbro, Inc., Marvel Characters B.V. and Spider-Man
Merchandising L.P. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the period ended March 29,
2009,
File No. 1-6682.)
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(r)
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DHJV Company LLC Limited Liability Company Agreement, dated as
of May 22, 2009, between the Company, Discovery Communications,
LLC, DHJV Company LLC and Discovery Communications, Inc.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.) (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended September 27, 2009, File No.
1-6682.)
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Executive Compensation Plans and Arrangements
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(s)
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Hasbro, Inc. 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 1995 Annual Meeting of
Shareholders, File No. 1-6682.)
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(t)
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First Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the period ended June 27,
1999, File No. 1-6682.)
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(u)
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Second Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 2000 Annual Meeting of
Shareholders, File No. 1-6682.)
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(v)
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Third Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Exhibit 10(x) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 2005, File No. 1-6682.)
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90
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Exhibit
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(w)
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1997 Employee Non-Qualified Stock Plan. (Incorporated by
reference to Exhibit 10(dd) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 29, 1996, File
No. 1-6682.)
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(x)
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First Amendment to the 1997 Employee Non-Qualified Stock Plan.
(Incorporated by reference to Exhibit 10 to the Companys
Quarterly Report on Form 10-Q for the period ended March 28,
1999, File No. 1-6682.)
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(y)
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Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1995 Stock Incentive
Performance Plan, and the 1997 Employee Non-Qualified Stock
Plan. (Incorporated by reference to Exhibit 10(w) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 27, 1992, File No. 1-6682.)
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(z)
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Third Amendment to the 1997 Employee Non-Qualified Stock Plan.
(Incorporated by reference to Exhibit 10(bb) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 2005, File No. 1-6682.)
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(aa)
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Form of Employment Agreement between the Company and three
Company executives (Brian Goldner, David D.R. Hargreaves and
Barry Nagler). (Incorporated by reference to Exhibit 10(v) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1989, File No. 1-6682.)
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(bb)
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Form of Amendment, dated as of March 10, 2000, to Form of
Employment Agreement included as Exhibit 10(x) above.
(Incorporated by reference to Exhibit 10(ff) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1999, File No. 1-6682.)
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(cc)
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Form of Amendment, dated December 12, 2007, to Form of
Employment Agreement included as Exhibit 10(x) above.
(Incorporated by reference to Exhibit 10(ee) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 30, 2007, File No. 1-6682.)
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(dd)
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Hasbro, Inc. Retirement Plan for Directors. (Incorporated by
reference to Exhibit 10(x) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 30, 1990, File
No. 1-6682.)
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(ee)
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First Amendment to Hasbro, Inc. Retirement Plan for Directors,
dated April 15, 2003. (Incorporated by reference to Exhibit 10.1
to the Companys Quarterly Report on Form 10-Q for the
period ended June 29, 2003, File No. 1-6682.)
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(ff)
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Second Amendment to Hasbro, Inc. Retirement Plan for Directors.
(Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the period ended June 27,
2004, File No. 1-6682.)
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(gg)
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Third Amendment to Hasbro, Inc. Retirement Plan for Directors,
dated October 3, 2007. (Incorporated by reference to Exhibit
10(ii) to the Companys Annual Report on Form 10-K for the
Fiscal Year Ended December 30, 2007, File No. 1-6682.)
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(hh)
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Form of Directors Indemnification Agreement. (Incorporated
by reference to Exhibit 10(jj) to the Companys Annual
Report of Form 10-K for the Fiscal Year Ended December 30, 2007,
File No. 1-6682.)
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(ii)
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Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(cc) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
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(jj)
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First Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated April 15, 2003. (Incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the period ended June 29, 2003, File No.
1-6682.)
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(kk)
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Second Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated July 17, 2003. (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended September 28, 2003, File No.
1-6682.)
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(ll)
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Third Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated December 15, 2005. (Incorporated
by reference to Exhibit 10(nn) to the Companys Annual
Report on Form 10-K for the Fiscal Year Ended December 25, 2005,
File No. 1-6682.)
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91
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Exhibit
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(mm)
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Fourth Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated October 3, 2007. (Incorporated by
reference to Exhibit 10(oo) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 30, 2007, File
No. 1-6682.)
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(nn)
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Hasbro, Inc. 1994 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
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(oo)
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First Amendment to the 1994 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the period
ended June 27, 1999, File No. 1-6682.)
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(pp)
|
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Form of Stock Option Agreement for Non-Employee Directors under
the Hasbro, Inc. 1994 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
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(qq)
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Hasbro, Inc. 2003 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix B to the Companys
definitive proxy statement for its 2003 Annual Meeting of
Shareholders, File No. 1-6682.)
|
|
|
|
|
(rr)
|
|
Hasbro, Inc. 2004 Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Companys
definitive proxy statement for its 2004 Annual Meeting of
Shareholders, File No. 1-6682.)
|
|
|
|
|
(ss)
|
|
Restated 2003 Stock Incentive Performance Plan. (Incorporated by
reference to Appendix B to the definitive proxy statement for
its 2009 Annual Meeting of Shareholders, File No. 1-6682.)
|
|
|
|
|
(tt)
|
|
First Amendment to Hasbro, Inc. Restated 2003 Stock Incentive
Performance Plan. (Incorporated by reference to Appendix C to
the definitive proxy statement for its 2009 Annual Meeting of
Shareholders, File No. 1-6682.)
|
|
|
|
|
(uu)
|
|
Form of Fair Market Value Stock Option Agreement under the 2003
Stock Incentive Performance Plan. (Incorporated by Reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the period ended March 30, 2008, File No. 1-6682.)
|
|
|
|
|
(vv)
|
|
Form of Premium-Priced Stock Option Agreement under the 2003
Stock Incentive Performance Plan. (Incorporated by Reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the period ended September 26, 2004, File No. 1-6682.)
|
|
|
|
|
(ww)
|
|
Form of Contingent Stock Performance Award under the Hasbro,
Inc. 2003 Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report
on Form 10-Q for the period ended March 30, 2008, File No.
1-6682.)
|
|
|
|
|
(xx)
|
|
Form of Restricted Stock Unit Agreement under the Hasbro, Inc.
2003 Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(zz) to the Companys Annual Report
on Form 10-K for the Fiscal Year ended December 28, 2008, File
No. 1-6682.)
|
|
|
|
|
(yy)
|
|
Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10(aaa)
to the Companys Annual Report on Form 10-K for the Fiscal
Year ended December 28, 2008, File No. 1-6682.)
|
|
|
|
|
(zz)
|
|
Hasbro, Inc. 2009 Management Incentive Plan. (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended March 29, 2009, File No.
1-6682.)
|
|
|
|
|
(aaa)
|
|
Amended and Restated Employment Agreement, dated May 22, 2008,
between the Company and Brian Goldner. (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K dated as of May 27, 2008, File No. 1-6682.)
|
|
|
|
|
(bbb)
|
|
Restricted Stock Unit Agreement, dated May 22, 2008, between the
Company and Brian Goldner. (Incorporated by reference to Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
period ended June 29, 2008, File No. 1-6682.)
|
|
|
|
|
(ccc)
|
|
Post-Employment Agreement, dated March 10, 2004, by and between
the Company and Alfred J. Verrecchia. (Incorporated by reference
to Exhibit 10(rr) to the Companys Annual Report on Form
10-K for the fiscal year ended December 28, 2003, File No.
1-6682.)
|
92
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
(ddd)
|
|
Amendment to Post-Employment Agreement by and between the
Company and Alfred J. Verrecchia. (Incorporated by reference to
Exhibit 10(hhh) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 30, 2007, File No. 1-6682.)
|
|
|
|
|
(eee)
|
|
Chairmanship Agreement between the Company and Alan Hassenfeld
dated August 30, 2005. (Incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
period ended September 25, 2005, File No. 1-6682.)
|
|
|
|
|
(fff)
|
|
Amendment to Chairmanship Agreement between the Company and Alan
Hassenfeld. (Incorporated by reference to Exhibit 10(hhh) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 2008, File No. 1-6682.)
|
|
|
|
|
(ggg)
|
|
Second Amendment to Chairmanship Agreement between the Company
and Alan Hassenfeld.
|
|
|
|
|
(hhh)
|
|
Form of Non-Competition and Non-Solicitation Agreement. (Signed
by the following executive officers: David Hargreaves, Duncan
Billing, John Frascotti, Deborah Thomas, Barry Nagler, Martin
Trueb, and certain other employees of the Company.)
(Incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the period ended October 1,
2006, File No. 1-6682.)
|
|
|
|
|
(iii)
|
|
Hasbro, Inc. 2009 Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix D to the Companys
definitive proxy statement for its 2009 Annual Meeting of
Shareholders, File No. 1-6682.)
|
|
12
|
.
|
|
Statement re computation of ratios.
|
|
21
|
.
|
|
Subsidiaries of the registrant.
|
|
23
|
.
|
|
Consent of KPMG LLP.
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934.
|
|
32
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934.
|
The Company agrees to furnish the Securities and Exchange
Commission, upon request, a copy of each agreement with respect
to long-term debt of the Company, the authorized principal
amount of which does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.
93
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Shareholders
Hasbro, Inc.:
Under date of February 24, 2010, we reported on the
consolidated balance sheets of Hasbro, Inc. and subsidiaries as
of December 27, 2009 and December 28, 2008, 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 27, 2009,
which are included in the
Form 10-K
for the fiscal year ended December 27, 2009. In connection
with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial
statement schedule of Valuation and Qualifying Accounts in the
Form 10-K.
This financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Providence, Rhode Island
February 24, 2010
94
HASBRO,
INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended in December
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning of
|
|
|
Cost and
|
|
|
Other
|
|
|
Write-Offs
|
|
|
at End of
|
|
|
|
Year
|
|
|
Expenses
|
|
|
Additions
|
|
|
and Other(a)
|
|
|
Year
|
|
|
Valuation accounts deducted from assets to which they
apply for doubtful accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
32,400
|
|
|
|
3,970
|
|
|
|
|
|
|
|
(3,570
|
)
|
|
$
|
32,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
30,600
|
|
|
|
4,680
|
|
|
|
|
|
|
|
(2,880
|
)
|
|
$
|
32,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
27,700
|
|
|
|
2,296
|
|
|
|
|
|
|
|
604
|
|
|
$
|
30,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes write-offs, recoveries of previous write-offs, and
translation adjustments. |
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HASBRO, INC.
(Registrant)
|
|
|
By: /s/ Brian
Goldner
Brian
Goldner
President and Chief Executive Officer
|
|
Date: February 24, 2010
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alfred
J. Verrecchia
Alfred
J. Verrecchia
|
|
Chairman of the Board
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Brian
Goldner
Brian
Goldner
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Deborah
Thomas
Deborah
Thomas
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Basil
L. Anderson
Basil
L. Anderson
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Alan
R. Batkin
Alan
R. Batkin
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Frank
J. Biondi, Jr.
Frank
J. Biondi, Jr.
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Kenneth
A. Bronfin
Kenneth
A. Bronfin
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ John
M. Connors, Jr.
John
M. Connors, Jr.
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Michael
W.O. Garrett
Michael
W.O. Garrett
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ E.
Gordon Gee
E.
Gordon Gee
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Jack
M. Greenberg
Jack
M. Greenberg
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Alan
G. Hassenfeld
Alan
G. Hassenfeld
|
|
Director
|
|
February 24, 2010
|
96
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Tracy
A. Leinbach
Tracy
A. Leinbach
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Edward
M. Philip
Edward
M. Philip
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ Paula
Stern
Paula
Stern
|
|
Director
|
|
February 24, 2010
|
97
HASBRO,
INC.
Annual Report on
Form 10-K
for the Year Ended December 27, 2009
Exhibit
Index
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
3
|
.
|
|
Articles of Incorporation and Bylaws
|
|
|
|
|
(a)
|
|
Restated Articles of Incorporation of the Company. (Incorporated
by reference to Exhibit 3.1 to the Companys Quarterly
Report on Form 10-Q for the period ended July 2, 2000, File No.
1-6682.)
|
|
|
|
|
(b)
|
|
Amendment to Articles of Incorporation, dated June 28, 2000.
(Incorporated by reference to Exhibit 3.4 to the Companys
Quarterly Report on Form 10-Q for the period ended July 2, 2000,
File No. 1-6682.)
|
|
|
|
|
(c)
|
|
Amendment to Articles of Incorporation, dated May 19, 2003.
(Incorporated by reference to Exhibit 3.3 to the Companys
Quarterly Report on Form 10-Q for the period ended June 29,
2003, File No. 1-6682.)
|
|
|
|
|
(d)
|
|
Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference to Exhibit 3(d) to the Companys
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 2006, File No. 1-6682.)
|
|
|
|
|
(e)
|
|
Certificate of Designations of Series C Junior Participating
Preference Stock of Hasbro, Inc. dated June 29, 1999.
(Incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for the period ended July 2, 2000,
File No. 1-6682.)
|
|
|
|
|
(f)
|
|
Certificate of Vote(s) authorizing a decrease of class or series
of any class of shares. (Incorporated by reference to Exhibit
3.3 to the Companys Quarterly Report on Form 10-Q for the
period ended July 2, 2000, File No. 1-6682.)
|
|
4
|
.
|
|
Instruments defining the rights of security holders, including
indentures.
|
|
|
|
|
(a)
|
|
Indenture, dated as of July 17, 1998, by and between the Company
and Citibank, N.A. as Trustee. (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
dated July 14, 1998, File No. 1-6682.)
|
|
|
|
|
(b)
|
|
Indenture, dated as of March 15, 2000, by and between the
Company and the Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4(b)(i) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1999, File No. 1-6682.)
|
|
|
|
|
(c)
|
|
Indenture, dated as of November 30, 2001, between the Company
and The Bank of Nova Scotia Trust Company of New York.
(Incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-3, File No. 333-83250, filed
February 22, 2002.)
|
|
|
|
|
(d)
|
|
First Supplemental Indenture, dated as of September 17, 2007,
between the Company and the Bank of Nova Scotia Trust Company of
New York. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed September 17,
2007, File No. 1-6682.)
|
|
|
|
|
(e)
|
|
Second Supplemental Indenture, dated as of May 13, 2009, between
the Company and the Bank of Nova Scotia Trust Company of New
York. (Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed May 13, 2009,
File No. 1-6682.)
|
|
|
|
|
(f)
|
|
Revolving Credit Agreement, dated as of June 23, 2006, by and
among Hasbro, Inc., Hasbro SA, Bank of America, N.A., Citizens
Bank of Massachusetts, Commerzbank AG, New York and Grand Cayman
Branches, BNP Paribas, Banc of America Securities LLC and the
other banks party thereto. (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K dated June
23, 2006, File No. 1-6682.)
|
|
10
|
.
|
|
Material Contracts
|
98
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Lease between Hasbro Canada Corporation (formerly named Hasbro
Industries (Canada) Ltd.)(Hasbro Canada) and Central
Toy Manufacturing Co. (Central Toy), dated December
23, 1976. (Incorporated by reference to Exhibit 10.15 to the
Companys Registration Statement on Form S-14, File No.
2-92550.)
|
|
|
|
|
(b)
|
|
Lease between Hasbro Canada and Central Toy, together with an
Addendum thereto, each dated as of May 1, 1987. (Incorporated by
reference to Exhibit 10(f) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 27, 1987,
File No. 1-6682.)
|
|
|
|
|
(c)
|
|
Addendum to lease, dated March 5, 1998, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(c) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 28, 1997, File No. 1-6682.)
|
|
|
|
|
(d)
|
|
Letter agreement, dated December 13, 2000, between Hasbro Canada
and Central Toy. (Incorporated by reference to Exhibit 10(d) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 2000, File No. 1-6682.)
|
|
|
|
|
(e)
|
|
Indenture and Agreement of Lease between Hasbro Canada and
Central Toy, dated November 11, 2003. (Incorporated by reference
to Exhibit 10(e) to the Companys Annual Report on Form
10-K for the Fiscal Year Ended December 28, 2003, File No.
1-6682.)
|
|
|
|
|
(f)
|
|
Toy License Agreement between Lucas Licensing Ltd. and the
Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)(Incorporated by reference to
Exhibit 10(d) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
|
|
|
|
|
(g)
|
|
First Amendment to Toy License Agreement between Lucas Licensing
Ltd. and the Company, dated as of September 25, 1998. (Portions
of this agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.)(Incorporated by reference to
Exhibit 10(e) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
|
|
|
|
|
(h)
|
|
Seventeenth Amendment to Toy License Agreement between Lucas
Licensing Ltd. and the Company, dated as of January 30, 2003.
(Incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 29, 2002, File No. 1-6682.)
|
|
|
|
|
(i)
|
|
Agreement of Strategic Relationship between Lucasfilm Ltd. and
the Company, dated as of October 14, 1997. (Portions of this
agreement have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.) (Incorporated by reference to
Exhibit 10(f) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 27, 1998, File No. 1-6682.)
|
|
|
|
|
(j)
|
|
First Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of September 25, 1998.
(Incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the Fiscal Year
ended December 27, 1998, File No. 1-6682.)
|
|
|
|
|
(k)
|
|
Second Amendment to Agreement of Strategic Relationship between
Lucasfilm Ltd. and the Company, dated as of January 30, 2003.
(Incorporated by reference to Exhibit 10(j) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 29, 2002, File No. 1-6682.)
|
|
|
|
|
(l)
|
|
Receivables Purchase Agreement dated as of December 10, 2003
among Hasbro Receivables Funding, LLC, as the Seller, CAFCO LLC
and Starbird Funding Corporation, as Investors, Citibank, N.A.
and BNP Paribas, as Banks, Citicorp North America, Inc., as
Program Agent, Citicorp North America, Inc. and BNP Paribas, as
Investor Agents, Hasbro, Inc., as Collection Agent and
Originator, and Wizards of the Coast, Inc. and Oddzon, Inc., as
Originators. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10(q) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 2003, File No. 1-6682.)
|
99
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
(m)
|
|
Amendment No. 8 to Receivables Purchase Agreement, dated as of
December 18, 2006, among Hasbro Receivables Funding, LLC, as the
Seller, CAFCO LLC and Starbird Funding Corporation, as
Investors, Citibank, N.A. and BNP Paribas, as Banks, Citicorp
North America, Inc., as Program Agent, Citicorp North America,
Inc. and BNP Paribas, as Investor Agents, Hasbro, Inc., as
Collection Agent and Originator, and Wizards of the Coast, Inc.
as Originator. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10(r) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 2006, file No. 1-6682.)
|
|
|
|
|
(n)
|
|
Amendment No. 12 to Receivables Purchase Agreement, dated as of
January 29, 2010, among Hasbro Receivables Funding, LLC, as the
Seller, CAFCO LLC and Starbird Funding Corporation, as
Investors, Citibank, N.A. and BNP Paribas, as Banks, Citicorp
North America, Inc., as Program Agent, Citicorp North America,
Inc. and BNP Paribas, as Investor Agents, Hasbro, Inc., as
Collection Agent and Originator. (Portions of this agreement
have been omitted pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of
1934, as amended.)
|
|
|
|
|
(o)
|
|
License Agreement, dated January 6, 2006, by and between Hasbro,
Inc., Marvel Characters, Inc., and Spider-Man Merchandising L.P.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.) (Incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the period ended April 2, 2006, File No.
1-6682.)
|
|
|
|
|
(p)
|
|
First Amendment to License Agreement, dated February 8, 2006, by
and between Hasbro, Inc., Marvel Characters, Inc. and Spider-Man
Merchandising L.P. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the period ended April 2,
2006, File No. 1-6682.)
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(q)
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License Agreement, dated February 17, 2009, by and between
Hasbro, Inc., Marvel Characters B.V. and Spider-Man
Merchandising L.P. (Portions of this agreement have been omitted
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934, as amended.)
(Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the period ended March 29,
2009,
File No. 1-6682.)
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(r)
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DHJV Company LLC Limited Liability Company Agreement, dated as
of May 22, 2009, between the Company, Discovery Communications,
LLC, DHJV Company LLC and Discovery Communications, Inc.
(Portions of this agreement have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.) (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended September 27, 2009, File No.
1-6682.)
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Executive Compensation Plans and Arrangements
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(s)
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Hasbro, Inc. 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 1995 Annual Meeting of
Shareholders, File No. 1-6682.)
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(t)
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First Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the period ended June 27,
1999, File No. 1-6682.)
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(u)
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Second Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 2000 Annual Meeting of
Shareholders, File No. 1-6682.)
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(v)
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Third Amendment to the 1995 Stock Incentive Performance Plan.
(Incorporated by reference to Exhibit 10(x) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 2005, File No. 1-6682.)
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100
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Exhibit
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(w)
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1997 Employee Non-Qualified Stock Plan. (Incorporated by
reference to Exhibit 10(dd) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 29, 1996, File
No. 1-6682.)
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(x)
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First Amendment to the 1997 Employee Non-Qualified Stock Plan.
(Incorporated by reference to Exhibit 10 to the Companys
Quarterly Report on Form 10-Q for the period ended March 28,
1999, File No. 1-6682.)
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(y)
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Form of Stock Option Agreement (For Participants in the Long
Term Incentive Program) under the 1995 Stock Incentive
Performance Plan, and the 1997 Employee Non-Qualified Stock
Plan. (Incorporated by reference to Exhibit 10(w) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 27, 1992, File No. 1-6682.)
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(z)
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Third Amendment to the 1997 Employee Non-Qualified Stock Plan.
(Incorporated by reference to Exhibit 10(bb) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 2005, File No. 1-6682.)
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(aa)
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Form of Employment Agreement between the Company and three
Company executives (Brian Goldner, David D.R. Hargreaves and
Barry Nagler). (Incorporated by reference to Exhibit 10(v) to
the Companys Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1989, File No. 1-6682.)
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(bb)
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Form of Amendment, dated as of March 10, 2000, to Form of
Employment Agreement included as Exhibit 10(x) above.
(Incorporated by reference to Exhibit 10(ff) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1999, File No. 1-6682.)
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(cc)
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Form of Amendment, dated December 12, 2007, to Form of
Employment Agreement included as Exhibit 10(x) above.
(Incorporated by reference to Exhibit 10(ee) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 30, 2007, File No. 1-6682.)
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(dd)
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Hasbro, Inc. Retirement Plan for Directors. (Incorporated by
reference to Exhibit 10(x) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 30, 1990, File
No. 1-6682.)
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(ee)
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First Amendment to Hasbro, Inc. Retirement Plan for Directors,
dated April 15, 2003. (Incorporated by reference to Exhibit 10.1
to the Companys Quarterly Report on Form 10-Q for the
period ended June 29, 2003, File No. 1-6682.)
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(ff)
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Second Amendment to Hasbro, Inc. Retirement Plan for Directors.
(Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the period ended June 27,
2004, File No. 1-6682.)
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(gg)
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Third Amendment to Hasbro, Inc. Retirement Plan for Directors,
dated October 3, 2007. (Incorporated by reference to Exhibit
10(ii) to the Companys Annual Report on Form 10-K for the
Fiscal Year Ended December 30, 2007, File No. 1-6682.)
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(hh)
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Form of Directors Indemnification Agreement. (Incorporated
by reference to Exhibit 10(jj) to the Companys Annual
Report of Form 10-K for the Fiscal Year Ended December 30, 2007,
File No. 1-6682.)
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(ii)
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Hasbro, Inc. Deferred Compensation Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(cc) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1993, File No. 1-6682.)
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(jj)
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First Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated April 15, 2003. (Incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the period ended June 29, 2003, File No.
1-6682.)
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(kk)
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Second Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated July 17, 2003. (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended September 28, 2003, File No.
1-6682.)
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(ll)
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Third Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated December 15, 2005. (Incorporated
by reference to Exhibit 10(nn) to the Companys Annual
Report on Form 10-K for the Fiscal Year Ended December 25, 2005,
File No. 1-6682.)
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101
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Exhibit
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(mm)
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Fourth Amendment to Hasbro, Inc. Deferred Compensation Plan for
Non-Employee Directors, dated October 3, 2007. (Incorporated by
reference to Exhibit 10(oo) to the Companys Annual Report
on Form 10-K for the Fiscal Year Ended December 30, 2007, File
No. 1-6682.)
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(nn)
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Hasbro, Inc. 1994 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix A to the Companys
definitive proxy statement for its 1994 Annual Meeting of
Shareholders, File No. 1-6682.)
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(oo)
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First Amendment to the 1994 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for the period
ended June 27, 1999, File No. 1-6682.)
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(pp)
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Form of Stock Option Agreement for Non-Employee Directors under
the Hasbro, Inc. 1994 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10(w) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 25, 1994, File No. 1-6682.)
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(qq)
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Hasbro, Inc. 2003 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Appendix B to the Companys
definitive proxy statement for its 2003 Annual Meeting of
Shareholders, File No. 1-6682.)
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(rr)
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Hasbro, Inc. 2004 Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix B to the Companys
definitive proxy statement for its 2004 Annual Meeting of
Shareholders, File No. 1-6682.)
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(ss)
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Restated 2003 Stock Incentive Performance Plan. (Incorporated by
reference to Appendix B to the definitive proxy statement for
its 2009 Annual Meeting of Shareholders, File No. 1-6682.)
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(tt)
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First Amendment to Hasbro, Inc. Restated 2003 Stock Incentive
Performance Plan. (Incorporated by reference to Appendix C to
the definitive proxy statement for its 2009 Annual Meeting of
Shareholders, File No. 1-6682.)
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(uu)
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Form of Fair Market Value Stock Option Agreement under the 2003
Stock Incentive Performance Plan. (Incorporated by Reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the period ended March 30, 2008, File No. 1-6682.)
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(vv)
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Form of Premium-Priced Stock Option Agreement under the 2003
Stock Incentive Performance Plan. (Incorporated by Reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for the period ended September 26, 2004, File No. 1-6682.)
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(ww)
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Form of Contingent Stock Performance Award under the Hasbro,
Inc. 2003 Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report
on Form 10-Q for the period ended March 30, 2008, File No.
1-6682.)
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(xx)
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Form of Restricted Stock Unit Agreement under the Hasbro, Inc.
2003 Stock Incentive Performance Plan. (Incorporated by
reference to Exhibit 10(zz) to the Companys Annual Report
on Form 10-K for the Fiscal Year ended December 28, 2008, File
No. 1-6682.)
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(yy)
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Hasbro, Inc. Amended and Restated Nonqualified Deferred
Compensation Plan. (Incorporated by reference to Exhibit 10(aaa)
to the Companys Annual Report on Form 10-K for the Fiscal
Year ended December 28, 2008, File No. 1-6682.)
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(zz)
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Hasbro, Inc. 2009 Management Incentive Plan. (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the period ended March 29, 2009, File No.
1-6682.)
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(aaa)
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Amended and Restated Employment Agreement, dated May 22, 2008,
between the Company and Brian Goldner. (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K dated as of May 27, 2008, File No. 1-6682.)
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(bbb)
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Restricted Stock Unit Agreement, dated May 22, 2008, between the
Company and Brian Goldner. (Incorporated by reference to Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
period ended June 29, 2008, File No. 1-6682.)
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(ccc)
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Post-Employment Agreement, dated March 10, 2004, by and between
the Company and Alfred J. Verrecchia. (Incorporated by reference
to Exhibit 10(rr) to the Companys Annual Report on Form
10-K for the fiscal year ended December 28, 2003, File No.
1-6682.)
|
102
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Exhibit
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(ddd)
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Amendment to Post-Employment Agreement by and between the
Company and Alfred J. Verrecchia. (Incorporated by reference to
Exhibit 10(hhh) to the Companys Annual Report on Form 10-K
for the Fiscal Year Ended December 30, 2007, File No. 1-6682.)
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(eee)
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Chairmanship Agreement between the Company and Alan Hassenfeld
dated August 30, 2005. (Incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
period ended September 25, 2005, File No. 1-6682.)
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(fff)
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Amendment to Chairmanship Agreement between the Company and Alan
Hassenfeld. (Incorporated by reference to Exhibit 10(hhh) to the
Companys Annual Report on Form 10-K for the Fiscal Year
Ended December 28, 2008, File No. 1-6682.)
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(ggg)
|
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Second Amendment to Chairmanship Agreement between the Company
and Alan Hassenfeld.
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(hhh)
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Form of Non-Competition and Non-Solicitation Agreement. (Signed
by the following executive officers: David Hargreaves, Duncan
Billing, John Frascotti, Deborah Thomas, Barry Nagler, Martin
Trueb, and certain other employees of the Company.)
(Incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the period ended October 1,
2006, File No. 1-6682.)
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(iii)
|
|
Hasbro, Inc. 2009 Senior Management Annual Performance Plan.
(Incorporated by reference to Appendix D to the Companys
definitive proxy statement for its 2009 Annual Meeting of
Shareholders, File No. 1-6682.)
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|
12
|
.
|
|
Statement re computation of ratios.
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21
|
.
|
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Subsidiaries of the registrant.
|
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23
|
.
|
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Consent of KPMG LLP.
|
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31
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
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31
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer Pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934.
|
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32
|
.2
|
|
Certification of the Chief Financial Officer Pursuant to Rule
13a-14(b) under the Securities Exchange Act of 1934.
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The Company agrees to furnish the Securities and Exchange
Commission, upon request, a copy of each agreement with respect
to long-term debt of the Company, the authorized principal
amount of which does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.
103