Hasbro 2006 Annual Report Download - page 26

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.
We previously issued warrants that provide the holder with an option through January 2008 to sell all of
these warrants to us for a price to be paid, at our election, of either $100,000 in cash or $110,000 in our
common stock, such stock being valued at the time of the exercise of the option. Should we be required to
settle these warrants under this option, we believe that we will have adequate funds to settle in cash if
necessary. However, we may not have sufficient funds at that time to make the required payment and may be
required to settle the warrants in stock.
As a manufacturer of consumer products and a large multinational corporation, we are subject to various
government regulations, violation of which could subject us to sanctions. 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 under The
Consumer Products Safety Act, The Federal Hazardous Substances Act, and The Flammable Fabrics Act. In
addition, certain of our products are subject to regulation by the Food and Drug Administration. 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
sales and results of operations.
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. While we currently maintain product
liability insurance coverage in amounts we believe sufficient for our business risks, we may not be able to
maintain such coverage or such coverage may not be adequate to cover all potential claims. Moreover, even if
we maintain sufficient insurance coverage, any successful claim could significantly harm our business,
financial condition and results of operations.
As a large, multinational corporation, we are subject to a host of governmental regulations throughout the
world, including antitrust, customs and tax requirements, anti-boycott regulations and the Foreign Corrupt
Practices Act. Our failure to successfully comply with any such legal requirements could subject us to
monetary liabilities and other sanctions that could harm our business and financial condition.
We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our
net income.
Goodwill is the amount by which the cost of an acquisition accounted for using the purchase method
exceeds the fair value of the net assets we acquire. Current accounting standards require that goodwill no
longer be amortized but instead be periodically evaluated for impairment based on the fair value of the
reporting unit. At December 31, 2006, approximately $469,938 or 15.2%, 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 income caused by the write-down of goodwill could harm
our results of operations.
Item 1B. Unresolved Staff Comments
None
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